Kenneth R. M ~ B Q R , Secretary t o the Colrumf~urisu. __L-

Adclresa all communications to Office of the Secretary

United States International Trade Csmmisr3ionr

1 In the Matter of ) CERTAIN PROCESSES FOR THE 1 Investigation No. 337-TA-148/169 MANUFACTURE OF SKINLESS SAUSAGE ) CASINGS AND RESULTING PRODUCT )

COMMISSION ACTION AND ORDER

Bac kg round

The Commission instituted Inv. No. 337-TA-148 in response to a complaint ,

filed by Teepak, Inc., of Chicago, Illinois (Teepak), and its parent, Bufpak

Corp., of New York, New York (Bufpak), to determine whether there is a

violation of section 337 of the Tariff Act of 1930 (19 U,S,C. § 1337) and 19

U,S.C. S 1337a in the importation and sale of certain skinless sausage

casings. (Notice of Institution, 48 Fed. Reg. 23491 (May 25, 1983)). The

complaint alleged that such importation and sale constitute unfair methods of

competition and unfair acts by reason of ( 1 ) infringement of claims 1 and 2 of

U , S . Letters Patent 3,456,286; (2) infringement of claims 1, 2, 3, and 5 of

U.S. Letters Patent 3,461,484 (the '484 patent); (3) infringement of claims 1

and 3 of U,S. Letters Patent 3,383,222; and (4) infringement of claims 1, 2,

and 5 of U.S. Letters Patent Re, 28,281. The complaint further alleged that

the effect or tendency of these unfair methods of competition and unfair acts

is to destroy or substantially injure an industry, efficiently and

economically operated, in the United States,

,

2

Inv. No. 337 TA-169 was instituted by the Commission in response to a

complaint filed by Union Carbide Corp., of Danbury, Connecticut (Union

Carbide), to determine whether there is a violation of section 337 in the

importation and sale of the same skinless sausage casings. (Notice of

Institution, 48 Fed Reg. 49557-58 (October 26, 1983)). The Union Carbide

complaint alleged that such importation and sale constitute unfair methods of

competition and unfair acts by reason of ( 1 ) infringement of claims 1-8 of

U.S. Letters Patent 3,397,069; (2) infringement of claims 2-5 and 7-14 of U.S.

Letters Patent 3,704,483; and (3) misappropriation of certain trade secrets.

The complaint further alleged that the effect or tendency of these unfair

methods of competition and unfair acts is to destroy or substantially injure

an industry, efficiently and economically operated, in the United States.

Respondent in both investigations, Viscofan, S . A . (Viscofan), is a

Spanish corporation engaged in the production and sale of the skinless sausage

casings under investigation. Industria Navarra de Conversion de Envolturas

Artificiales, S . A . (Cearsa), is a Spanish corporation owned by the same

shareholders as Viscofan, and is in the process of being acquired by

Viscofan. Cearsa originally served as a subcontractor engaged in shirring the

skinless sausage casings under investigation for respondent Viscofan. Cearsa

has been treated as a part of Viscofan for purposes of these investigations.

Following a preliminary conference, the administrative law judge (ALJ)

issued an initial determination (ID) designating Inv. No. 337-TA-148 as "more

complicated" and consolidating that investigation with Inv. No, 337-TA-169.

The Commission issued notice of its decision not to review that ID on November

22, 1983, (48 Fed. Reg. 54140 (November 30, 1983)).

3

On May 22, 1984, Union Carbide filed an unopposed motion to amend the

complaint and notice of investigation in investigation No, 337-TA-169 so as to

delete all references to infringement of the claims of U.S. Letters Patent

Nos. 3,397,069 and 3,704,483. The ALJ granted the motion at the time of the

ID on violation, since discussion at the prehearing conference indicated that

the imported skinless sausage casings under investigation do not infringe the

claims of those patents, and no evidence was received during the hearing with

respect to those patents. (ID at 8-9). Thus, the only unfair act remaining

in investigation No. 337-TA-169 is the misappropriation of trade secrets.

On May 24, 1984, Teepak filed an unopposed motion to amend the complaint

and notice of investigation in investigation No. 337-TA-148 so as to delete

all references to infringement of the claims of U,S. Letters Patent Nos.

3,383,222, 3,456,286, and Re. 28,281. The ALJ granted the motion at the time

of the ID on violation, since Teepak and Viscofan had resolved the issues

pertaining to those patents between themselves. No evidence on any of these

patents was received during the hearing. (ID at 9). Thus, the only remaining

unfair act in investigation No. 337-TA-148 is infringement o f the '484 patent.

On August 1, 1984, The ALJ issued his ID that there is a violation of

section 337 and 19 U.S.C, S 1337a in the importation and sale of the skinless

sausage casings under investigation. Specifically, the ALJ determined in Inv

No. 337-TA-148 that respondent Viscofan manufactures skinless sausage casings

using a method which would, if practiced in the United States, infringe a

valid U.S. patent (U.S. Letters Patent 3,461,484) owned by complainant Bufpak

and that respondent Viscofan had misappropriated certain trade secrets owned

by Complainant Union Carbide in Inv. No. 337-TA-169. The ALJ found all the

other elements of a viclation o f section 337 to exist in each investigation.

4

The ALJ also determined that respondent Viscofan had failed to prove its

affirmative defenses of patent misuse and unclean hands, wherein it alleged

that complainants Teepak and Union Carbide had conspired to monopolize the

manufacture of skinless sausage casings in the United States by means of

illegal patent pooling, cross-licensing, price-fixing, and predatory behavior.

On August 2 7 , 1 9 8 4 , - t h e Commission determined to extend the deadline for

deciding whether to review the ID from August 3 1 , 1984, to September 2 1 , 1984,

in order to allow time for the receipt and review of comments from government

agencies and a for thorough assessment of the issues raised by the petitions

for review. 49 Fed. Reg. 35259 (Sept. 6 , 1984) .

On September 2 1 , 1984, the Commission determined to review one issue I .

raised in respondent Viscofan's petition for review. The Commission

determined to review the ALJ's disposition of Motion No. 148/169-17,

respondent's motion to redesignate certain documents and deposition testimony

as nonconfidential. The Conimission further determined not to review the ALJ's

determination as to violation of section 337 and 19 U.S.C, 5 1337a. 49 Fed.

Reg. 39925 (Oct. 1 1 , 1984) . The parties were requested to file written

submission on the issue under review, and on remedy, the public interest, and

bonding, by October 24, 1984. Complainant Union Carbide, respondent Viscofan,

and the Commission investigative attorney have submitted briefs on the issue

under review. Complainants Teepak and Union Carbide, respondent Viscofan, and

the Commission investigative attorney have submitted briefs or1 the issues of

remedy, the public interest, and bonding. Submissions on the issue of the

public interest have been received from Members of Congress and from the

Secretary of Commerce, The Customs Service has filed a submission on the

issue of remedy. No other submissions were received.

5

Action

Having considered the briefs of the parties, and the record in these

investigations, the Commission has determined to affirm the the ALJ's

disposition of Motion No, 148/169-17, respondent's motion to redesignate as

nonconfidential certain documents and deposition testimony produced by

complainant Union Carbide.

Having determined that the issues of remedy, the public interest, and

bonding are properly before the Commission, and having reviewed the written

submissions filed on remedy, the public interest, and bonding and those

portions of the record relating to those issues, the Commission has determined

in investigation No. 337-TA-148 to issue a general exclusion order

prohibiting entry into the United States, except under license, of small

caliber cellulose skinless sausage casings manufactured in accordance with a

method which, if practiced in the United States, would infringe claims 1, 2,

3, and 5 of U.S. Letters Patent 3,461,484, owned by complainant Bufpak, for

the remaining term of the patent. The Commission has further determined, in

investigation No. 337-TA-169, to issue a limited exclusion order prohibiting

entry into the United States, except under license from complainant Union

Carbide, of small caliber cellulose skinless sausage casings manufactured by

Viscofan, S.A. and Industria Navarra de Conversion de Envolturas Artificiales,

S.A., of San Sebastian, Spain, for a period of ten (10) years from the date of

%his order.

The Commission has also determined that the public interest factors

enumerated in section 337(d) (19 U.S,C. 1337(d)) do not preclude issuance of

the aforementioned general exclusion order arid limited exclusion order, and

that the bond during the Presidential review period should be in the amount of

55 percent of the entered value of the articles concerned.

I .

6

Order

Accordingly, it i s hereby ORDERED THAT-

1.

2.

3.

4 .

5 .

6 .

Small ca l iber ce l lu lo se sk in le s s sausage casings manufactured abroad i n accordance with the process d i sc lo sed by claims 1, 2, 3, and 5 o f U . S . Letters Patent 3,461,484 a r e excluded from entry into the United States f o r the remaining t e r m o f the patent, except under l icense o f the owner o f the patent;

Persons de s i r i ng to import small ca l iber ce l lu lo se s k i n l e s s sausage cas ings in to the United States may pe t i t i on the Commission to i n s t i t u te such further proceedings as may be appropriate in order to determine whether the sausage cas ings sought to be imported do not fa l l within the scope o f paragraph (1) o f t h i s order, and therefore should be allowed entry into the United States;

Small ca l iber ce l lu lo se s k i n l e s s sausage cas ings manufactured by Viscofan, S . A . and I ndu s t r i a Navarra de Conversion de Envolturas A r t i f i c i a l e s , S . A . , o f San Sebastian, Spain, o r any o f i t s a f f i l i a t ed companies, parents, subs id ia r ie s , o r other related business en t i t i e s , o r t h e i r successors o r a s s i gn s , are excluded from entry into the United States f o r a period o f ten (10) years from the date o f t h i s order, except under l icense o f Union Carbide Corporation.

The a r t i c l e s ordered to be excluded from entry in to the United States shall be entit led t o entry under bond in the amount o f 55 percent o f the entered value o f the subject a r t i c l e s from the day a f t e r t h i s order i s received by the President pursuant t o subsection (9) o f section 337 o f the T a r i f f Act o f 1930, u n t i l such time as the President no t i f i e s the Commission that he approves o r disapproves t h i s act ion, but, in any event, not l a t e r than 60 days a f te r the date o f receipt o f this action;

The Secretary s h a l l serve copies o f t h i s Commission Action and Order and the Commission Opinion in support thereof upon each party o f record to t h i s i nves t i gat ion and pub l i sh notice thereof in the Federal Register; and

The Commission may amend t h i s Order in accordance with the procedure described i n section 211.57 o f the Commission's Rules o f Practice and Procedure (19 C . F .R . 5 211.57).

7

By o r d e r of the Coinmission.

-4LL enneth R . Mason

Secretary

Issued: November 26, 1984

1 I n the Mat te r o f 1 CERTAIN PROCESSES FOR THE 1

CFISINGS AND RESULTING PRODUCT' ) 1

MANUFACTURE OF SK INLESS SAUSAGE ) I n v e s t i g a t i o n No , 337--TA.- l&8/169

COMMISSION OPINION

INTRODUCTrON

The Commission i n s t i t u t e d I n v . No . 337-TA-148 i n response t o a cornplaint

f i l e d by Teepak, I n c . , o f Ch icago, I l l i n o i s (Teepak), arid i t s parent , Bufpak

C o r p . , of New York , New York (Bufpak), t o determine whether there i s a

v i o l a t i o n o f s e c t i o n 337 of the Tariff Act o f 1930 (19 U . S . C . 5 1337) and 19

U . S . C . S 1337a i n the impor ta t i on and s a l e o f c e r t d i n s k i n l e s s sausage

c a s i n g s . (No t i ce of I n s t i t u t i o n , 48 Fed. Reg. 23491 (May 25, 1983)) . The

compla in t a l l e g e d that such importat ion and s a l e c o n s t i t u t e u n f a i r methods o f

co inpet i t ion and u n f a i r a c t s by rea son o f (1) in f r ingement o f c l a ims 1 and 2 o f

U . S . L e t t e r s Patent 3,456,286; (2) i n f r ingement o f c l a ims 1, 2, 3 , and 5 o f

U.S, L e t t e r s Pa ten t 3,461,484 ( the ' 484 patent ) ; (3) i n f r ingement o f c la ims 1

and 3 o f U . S . L e t t e r s Patent 3 ,383,222; arid (4) in f r ingement o f c l a ims I , 2 ,

and 5 o f U . S . L e t t e r s Patent Re. 28 ,281. The compla int f u r t h e r a l l e g e d thdt

the e f f e c t o r tendency o f these u n f a i r methods o f compet i t ion and u n f a i r a c t s

i s t o de s t r o y o r s u b s t a n t i a l l y i n j u r e an i ndu s t r y , e f f i c i e n t l y and

economical ly operated, i n the Un i ted S t a t e s .

I n v . No. 337 TA-169 was i n s t i t u t e d by the Commission i n response t o a

compla int f i l e d by Union Carb ide Co rp . , o f Danbury, Connect i cut (Union

Carb ide), t o determine whether the re i s a v i o l a t i o n o f s e c t i o n 337 i n the

impor ta t i on and s a l e o f the same s k i n l e s s sausage c a s i n g s . (Not i ce o f

2

Institution, 48 Fed Reg. 49557-58 (October 26, 1983)). The Union Carbide

complaint alleged that such importation and sale constitute unfair methods of

competition and unfair acts by reason of (1) infringement of claims 1-8 of

U.S. Letters Patent 3,397,069; (2) infringement of claims 2-5 and 7-14 of U.S.

Letters Patent 3,704,483; and (3) misappropriation of certain trade secrets.

The complaint further alleged that the effect or tendency of these unfair

methods of competition and unfair acts is to destroy or substantially injure

an industry, efficiently and economically operated, in the United States.

Respondent in both investigations, Viscofan, S.A. (Viscofan), is a

Spanish corporation engaged in the production and sale of the skinless sausage

casings under investigation.

Artificiales, S.A. (Cearsa), is a Spanish corporation owned by the same

Industria Navarra de Conversion de Envolturas I .

shareholders as Viscofan, and is in the process of being acquired by

Viscofan. Cearsa originally served as a subcontractor engaged in shirring the

skinless sausage casings under investigation €or respondent Viscofan. Cearsa

has been treated as a part of Viscofan for purposes of these investigations.

Following a preliminary conference, the administrative law judge (ALJ)

issued an initial determination ( I D ) designating Inv. No. 337-TA-148 as "more

complicated" and consolidating that investigation with Inv. No. 337-TA-169.

The Commission issued notice of its decision not t o review that I D on November

22, 1983. (48 Fed. Reg. 54140 (November 30, 1983)).

On May 22, 1984, Union Carbide filed an unopposed motion to amend the

complaint and notice of investigation in investigation No. 337-TA-169 so as to

delete all references to infringement of the claims of U.S. Letters Patent

Nos. 3,397,069 and 3,704,483. The ALJ granted the motion at the time of the

I D on violation, since discussion at the prehearing conference indicated that

3

the imported skinless sausage casings under investigation do not infringe the

claims of those patents, and no evidence was received during the hearing with

respect to those patents. (ID at 8-91, Thus, the only unfair act remaining

in investigation No. 337-TA-169 is the misappropriation of trade secrets.

On May 24, 1984, Teepak filed an unopposed motion to amend the complaint

and notice of investigation in investigation No. 337-TA-148 so as to delete

all references to infringement of the claims of U.S. Letters Patent Nos.

3,383,222, 3,456,286, and Re. 28,281. The ALJ granted the motion at the time

of the ID on violation, since Teepak and Viscofan had resolved the issues

pertaining to those patents between themselves.

patents was received during the hearing. (ID at 9). Thus, the only remaining

unfair act in investigation No. 337-TA-148 is infringement of the '484 patent.

No evidence on any of these

On August 1, 1984, the ALJ issued his ID that there is a violation of

section 337 and 19 U.S.C. S 1337a in the importation and sale of the skinless

sausage casings under investigation. Specifically, the ALJ determined in Inv.

No. 337-TA-148 that respondent Viscofan manufactures skinless sausage casings

using a method which would, if practiced in the United States, infringe a

valid U.S. patent (U.S. Letters Patent 3,461,484) owned by complainant Bufpak

and that respondent Viscofan had misappropriated certain trade secrets owned

by c.omplainant Union Carbide in Inv. No. 337-TA-169. The ALJ found all the

other elements of a violation of section 337 to exist in each investigation.

The ALJ also determined that respondent Viscofan had failed to prove its

affirmative defenses of patent misuse and unclean hands, wherein it alleged

that complainants Teepak and Union Carbide had conspired to monopolize the

manufacture of skinless sausage casings in the United States by means of

illegal patent pooling, cross-licensing, price-fixing, and predatory behavior.

4

On August 27, 1984, the Commission determined to extend the deadline for

deciding whether to review the ID from August 31, 1984, to September 21, 1984,

in order to allow time for the receipt and review of comments from government

agencies and a for thorough assessment of the issues raised by the petitions

for review. 49 Fed. Reg. 35259 (Sept. 6, 1984).

On September 21, 1984> the Commission determined to review one issue

raised in respondent Viscofan's petition for review. The Commission

determined to review the ALJ's disposition of Motion No. 148/169-17,

respondent's motion to redesignate certain documents and deposition testimony

as nonconfidential. The Commission further determined not to review the ALJ's

determination as to violation of section 337 and 19 U.S.C. S 1337a. 49 Fed.

Reg. 39925 (Oct. 11, 1984). The parties were requested to file written ,.

submission on the issue under review, and on remedy, the public interest, and

bonding, by October 2 5 , 1984. Complainant Union Carbide, the Commission

investigative attorney (IA), and respondent Viscofan have submitted briefs on

the issue under review. Complainants Teepak and Union Carbide, respondent

Viscofan, and the Commission investigative attorney have submitted briefs on

the issues of remedy, the public interest, and bonding. Submissions on the

issue of the public interest have been received from Members of Congress and

from the Secretary of Cormnerce. The Customs Service has filed a submission on

the issue of remedy. No other submissions were received.

BACKGROUND

- A. The Parties

Complainants in Inv. No. 337-TA-148, are Bufpak Corp. and its subsidiary,

Teepak, Inc. (Teepak). Teepak is a Delaware corporation engaged in the

manufacture and sale o f synthetic skinless sausage casings.

5

Complainant in Inv. No. 337-TA-169, Union Carbide Gorp. (Union Carbide)

is a New York corporation engaged in the manufacture and sale of sausage

casings of various types and sizes. Union Carbide's Films-Packaging Division

manufactures and sells, inter alia, the skinless sausage casings under

investigation.

Viscora, S.A. (Viscora) is a French subsidiary of Union Carbide. Union

Carbide has been the sole shareholder o f Viscora since January 1, 1982. Prior

to that time, Union Carbide owned 50 percent of Viscora; the remaining 50

percent was owned by Novacel, a French company. Viscora produces and sells

skinless sausage casings. &/

Respondent in bot'n investigations, Viscofan, S.A. (Viscofan), is a

Spanish corporation engaged in the production and sale of the skinless sausage

casings under investigation. Industria Navarra de Conversion de Envolturas

Artificiales, S.A. (Cearsa), is a Spanish corporation owned by the same

shareholders as Viscofan, and is in the process of being acquired by

Viscofan. Cearsa originally served as a subcontractor engaged in shirring 21

the skinless sausage casings under investigation f o r respondent Viscofan.

Cearsa has been treated as a part of Viscofan for purposes of these

investigations.

l/ While not a party to the investigation, Viscora is involved in that the misappropriation of trade secrets took place from Viscora's plant in Beauvais , France.

dezsely pleated and compressed into short, rigid, tubular sticks. 6-8, infra.

21 Shirring is a finishing process whereby skinless sausage casings are See pp.

6

B. The Product and the Technology of Manufacture

The product involved in these investigation is small caliber tubular

cellulose sausage casings, known as skinless sausage casings. 3/

The general manufacturing process for skinless sausage casings as

practiced by each of the parties to these investigations involves three

distinct manufacturing operations: (1) chemical preparation, which involves

the manufacture of viscose from natural cellulose fibers; (2) simultaneous

regeneration of the cellulose and continuous formation of accurately-sized

cellulose tubes in extrusion machines, including drying the extruded casing

under carefully controlled conditions and winding it onto reels of

semi-finhshed material called "flat stock;" and (3) shirring, which is a

finishing operation during which lengths of flat stock are finely pleated and

compressed into short, self-supporting, tubular sticks.

The chemical preparation involves the derivation of viscose from a

cellulose source, * * * * * * * * * * * * * * * * * . Preparation of viscose

requires application of chemical processing technology which originated with

the manufacture of rayon and cellulose sheets (i.e. cellophane), and which has

been adapted to the manufacture of cellulose sausage casings. Chemical

- 3 / There are various other kinds of sausage casings besides skinless sausage casings: (1) large caliber cellulose casings, which are used for, e.g., bologna and salami; (2) fibrous casings, which are larger, fiber-web-reinforced cellulose casings used for sliced sausage products and smoked meats; ( 3 ) MP fibrous casings with an impermeable outside plastic coating used on liver sausage and other sausages where impermeability is desired; ( 4 ) animal casings, made from the intestines of animals, which are used for all types of meat products; ( 5 ) collagen casings, which are regenerated casings made from animal hides and used for both large and small sausages; and (6) plastic tubings, which are used for large specialty products such as liver sausages. These casings are not normally removed from the product prior to sale, and are not involved in these proceedings. ID at 12, FF 12. - 4 / ID at 13, FF 13.

7

preparation also involves the preparation of an acid bath which serves to

coagulate and regenerate the liquid viscose into a solid, seamless cellulose

tube during the manufacturing operation. I/

The manufacturing operation involves the continuous extrusion of viscose

on a large machime with multiple extrusion nozzles, and drying operations. At

each station of the extrusion machine, viscose and acid bath are pumped

through a nozzle * * * * * * * * * * * * . The viscose emerges upward from

* * * * * * * * * * * * * *, into a tall, slender aquarium of acid bath. * * * * * * A * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

. . . . . . . . . . . . . . . . . . . . . . . . . . * * * * * * * * * * * * *

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * * * * * *’ * *. Economic manufacture requires that the casing travel at high

speed, and that the process be continuous. $1

The finishing or shirring operation involves the use of highly

spc.c.ialized machines which accept a reel of flat stock at one end, and turn

out a succession of closely pleated, short, rigid, tubular sticks of sausage

casing at the other. These sticks are densely pleated, or shirred, and

compressed, so that a stick of less than 20 inches in length contains between

50 and 160 feet of sausage casing. I/

Weatpackers use skinless sausage casings to make sausage products by

sliding a stick of shirred casing over the stuffing tube or horn of a sausage

- 5/ ID at 1 3 , FF 14. I 6 / ID at 14, FF 15-18. - 71 I D at 15, FF 19.

8

stuffing machine and pumping a meat emulsion into the stick as it de-shirrs,

or extends. The meat-filled casing is twisted at intervals to define

individual sausages or links.

after which the casing is normally removed, and the resulting product is sold

as "skinless" sausages or frankfurters. E/

The long chain of links produced is cooked,

C. The Patent and the Trade Secrets

U . S . Letters Patent 3,461,484 (the '484 patent), entitled "Process for

Shirring Sausage Casings" issued to Lionel C . Arnold on August 19, 1969, and

was assigned to Teepak. The '484 patent issued on the basis of application

Serial No. 720,140, filed on April 10, 1968, which was a division of the

, original application, Serial No. 564,961, filed on July 13, 1966. The '484

patent relates to improvements in the process of shirring artificial sausage

casings. Prior to the invention of the '484 patent, commercially acceptable

shirring processes were described in three patents issued to Blizzard (the

Blizzard patents) and two patents issued to Hatecki (the Hatecki patents).

These patents generally describe a shirring process where an inflated tubular

casing is positioned around an internal mandrel and presented to a shirring

location, where teeth apply shirring forces intermittently at spaced locations

around the periphery o f the inflated casing. The '484 patent improvement

consists of a method in which the shirring forces are applied in discrete

segments along a substantially continuous helical line. 21

The invention of the '484 patent was prompted by the development in the

early 1960's of a highly automated meat-stuffing machine known as the

"Frank-A-Matic," which operated at very high speed. This machine involved the

- - - 81 ID at 12, FF 11. - 9/ ID at 22, FF 47.

9

use of an automatic feeding mechanism for casing sticks which required

relatively straight sticks of uniform diameter which were not susceptible to

undue breaking during handling. In addition, the high speed of the machine

made it desirable to provide the maximum length of casing possible in the

minimum stick length in order to minimize disruptions in the operating time of

the machine. It was also important that the sticks de-shirr uniformly and

with minimal breakage in the course of the stuffing operation.

produced by the Blizzard and Hatecki methods were not suitable for use with

Shirred sticks

the Frank-A-Hatic equipment, as they did not have the desired uniformity in

diameter, straightness, resistance to breaking, and compactness. E/ Sticks produced in accordance with the method of the '484 patent are well-suited for

, use with the Frank-A-Matic equipment. 111

Union Carbide alleged that its overall, integrated sausage casing

manufacturing operations comprise a trade secret which has been

misappropriated by Viscofan. u/ Seven specific trade secrets were designated as representative examples for the purposes o f this investigation. 131 The

seven specific trade secrets asserted by Union Carbide cover every phase of

casing manufacture, from composition of the viscose, to extrusion of the

casing, and finishing with the shirring operation. They concern several

specific aspects in each stage of production, including standards and

specifications, and the design and construction of particular pieces of

machinery and equipment. The seven alleged trade secrets involve:

- - - 10/ ID at 21, FF 42. - 111 ID at 23, FF 48-50. - 12/ ID at 247. - 131 Id.

10

1. * * Carryover;

2. Extrusion Nozzle and Mandrel Assembly;

3. Chemical, Quality Control, and Manufacturing Standards and

Specifications;

4. Overall Shirring Machine Configuration;

5 . Shirring Head Assembly and Lubrication System;

6. External Configuration and Construction of Shirring Mandrel; and

7. Shirring Mandrel Internal Spray System. u/

D. Events in France and Spain

A central issue presented in Inv. No. 337-TA-169 is the source of the I technology utilized in Viscofan's manufacturing operations. Viscofan was

organized in 1975 for the purpose of manufacturing cellulose sausage

casings. =/

Viscofan - Papelera, a company involved in the manufacture of cellophane film,

and Pingon, a company involved in the manufacture of collagen casings. 161

The two companies, together with a number of individuals, collaborated to set

up Viscofan. jJ/ At some point between 1976 and 1978, a pilot plant was set

up at Viscofan's facility at Caseda, Spain, which apparently continued

developmental work started at Papelera. By 1979, Viscofan had succeeded in

Two companies were principally involved in the formation of

producing a casing of commercial quality, and commenced full-scale, commercial

manufacturing and sale of cellulose casings. u/

- 141 See ID at 41-83 for descriptions of the trade secrets. - 151 ID at 15, FF 20. - 16/ ID at 17, FF 27-28. - 171 a. - 181 ID at 18. FF 27-28.

11

,

In 1975, two of Viscofan's principals discussed the possibility of

obtaining a license for Union Carbide's casing technology with the chairman of

Viscora, Union Carbide's French subsidiary. u/ Since Yiscora itself was a

licensee of the technology at that time, it was not in a position to grant

such a license. Union Carbide alleged that after this initial contact

produced no positive results, the principals of Viscofan approached employees

of Viscora and its subcontractors, and with their assistance, removed

technical drawings, specifications, and pieces of equipment from Viscora's

plant, which were copied, and served as the basis on which Viscofan's

manufacturing operations were developed. a/ Union Carbide's knowledge of these events derives from information

provided by one of the two principals involved in the initial contact with

Viscora and the theft, Jesus Barber. Mr. Barber, after an apparent falling

out with the other Viscofan shareholders, approached Viscora and recounted the

details of Viscofan's efforts to obtain Viscora's technology. a/ He offered his assistance to Viscora and Union Carbide in any actions they might take, * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * * * I * * * * * * * * * * * * * *

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - A criminal investigation was instituted in France, * * * * * * * * * * *

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

- 191 ID at 84, FF 267. - 20/ - 211 ID at 89, FF 290. - 22/ ID at 90, FF 294.

ID at 55-89 for a description of the alleged criminal conduct.

12

Following a trial in 1983, certain individuals were convicted in France of

theft and bribery of employees. a/ The judgment of the French court made no

findings concerning the value o r secrecy of the items and information stolen.

Viscora also instituted a similar action in Spain. =/ The Spanish court

ordered an expert study and report on the similarities between Viscora's and

Viscofan's operations. However, the Spanish court determined that it did not

have jurisdiction over the alleged thefts, which occurred in France, and

therefore did not make any decision on the substance of Viscora's charges.

Substantial portions of the records of the French and Spanish

investigations were entered in the record of the Commission investigations,

including the judgments of the French and Spanish courts, and the reports of

the experts assigned to study Viscora's and Viscofan's operations. ,

Judge

Duvall determined that the results of the foreign actions have no collateral

eptoppel o r res judicata effect on the Commission proceedings, but that the documents introduced were relevant to the issue of whether there was

misappropriation of Union Carbide's trade secrets. a/ He concluded, in

addition, that there was sufficient evidence in the record to establish the

probability that Viscofan had access to and benefited from Viscora's (and

consequently Union Carbide's) technology, and that the evidence submitted from

the French and Spanish proceedings was not an indispensable element of his

determination of misappropriation, but rather served to corroborate the

inference drawn from other evidence of record that misappropriation must have

occurred. E/

- - 23/ $& I D at 90-92 for a description of the French proceedings. - 24/ See I D at 92-94 for a description of the Spanish proceedings. - 251 ID at 250-253. - 261 I D at 253.

13

A. The issue on review: Denial of Motion to Redesignate Certain Documents and

Deposition Testimony as Non-confidential

The Commission granted review of the ALJ's denial, during the course of

the investigation, of a motion, filed by respondent Viscofan, to redesignate

certain documents and deposition testimony as nonconfidential. During

discovery in this investigation, * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * X * * * * * * * * * * * * * * * * * * *

* * * * * * * * * * * * * * * * * * *. The information was provided under

* * * *. The ALJ denied the motion at the prehearing conference. 271

We have determined to affirm the ALJ's disposition of this motion. 281

The proper standard of review on this issue is whether the ALJ abused his

discretion in denying respondent Viscofan's motion. Evidence in a section 337

investigation is gathered solely for the purposes of that proceeding. The

statute and rules do not provide any support for the notion that information

should be declassified because it is sought for use in a foreign court

proceeding. Moreover, the * * * * * * * * * * * are "expenditures" of Union Carbide, and thus qualify as confidential business information within the

literal terms of the rules and the ALJ's protective order. Nothing in rule

2 0 1 . 6 as it existed when the protective order in this investigation issued,

and the subject information was produced, limited the type of "expenditure"

which would qualify as confidential. The ALJ's decision was reasonable and

not an abuse of discretion, and therefore is affirmed.

- 271 Prehearing Conference transcript at 15. 281 Vice Chairman Liebeler dissents from this determination. See her

Additional Views, which follow.

14

B. Remedy

The issue of violation having been decided by our determination not to

review those portions of Judge Duvall's ID dealing with violation of section

337 and 19 U.S.C. 1337a, the issues remaining to be decided are those of

remedy, the public interest, and bonding.

1. Investigation No. 337-TA-148

We have determined that the appropriate remedy in this investigation is

the issuance of a general exclusion order. g/

the criteria established in Spray Pumps for the issuance of a general

The facts of this case satisfy

exclusion order. =/ In Spray Pumps, the Commission noted that it has an .? obligation to balance complainant's interest in complete protection against

the inherent potential of a general exclusion order to disrupt legitimate

trade. 311 Therefore, the Commission has since required that a complainant

seeking a general exclusion order prove "both a widespread pattern of

unauthorized use of its patented invention and certain business conditions

from which [the Comission] might reasonably infer that foreign manufacturers

other than the respondents to the investigation may attempt to enter the U.S.

market with infringing articles." x/ In Spray Pumps, the Commission stated that in order to establish a

widespread pattern of unauthorized use, there must be:

- 29/ Vice Chairman Liebeler dissents from this determination.

- 301 Investigation No. 337-TA-90, USITC Pub. 1199; 216 U.S.P.Q. 465 (1981). 311 It should be noted that the Commission did not issue a general exclusion

See her Additional Views, which follow.

order in Spray Pumps, as the facts of that investigation did not meet the criteria set forth. - 321 Id. at 18.

15

(1) a Commission determination of unauthorized importation into the

United States of infringing articles by numerous foreign

manufacturers; or

(2) pending foreign infringement suits ba'sed upon foreign patents

which correspond to a domestic patent in issue; and

( 3 ) other evidence which demonstrates a history of unauthorized

foreign use of the patented invention. a/ There is evidence of record suggesting that future imports of skinless

sausage casings are likely to be infringing. Despite Viscofan's claims, the

record supports Teepak's argument that the.prior art technology does not

produce shirred sausage casings which are acceptable for use by the U.S.

meatpacking industry. This implies that imports are likely to be infringing,

absent development of new, noninfringing technology. Although there is no

evidence of pending foreign infringement suits based on foreign patents

corresponding to the '484 patent, Teepak believes that the shirring machine

manufactured by Kollross, GmbH, a West German manufacturer of machinery,

infringes the '484 patent. Teepak's patent counsel has met with

representatives of Kollross to discuss Teepak's claim that the Kollross

machine infringes, and has notified manufacturers of skinless sausage casings

who have bought the Kollross machine that their use of the machine constitutes

infringement. * * * * * * * * * * * * X ' * * * * * * * * * * * * * * * * * * . . . . . . . . . . . . . . . . . . . . . . . . * * * * ~ * * * * * * * * * * * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * * * * * * * * * * * * * * * * * * * * * * * * * * * * , 3 4 / As -

- 33/ Id. at 18-19 (footnotes omitted). - 3 4 / FF 625.

16

I .

discussed below, our order has a provision allowing potential importers to

petition the Commission for a determination that their process does not

infringe the '484 patent.

In order to establish the *'business conditions" referred to in Spray

Pumps as a prerequisite for the issuance of a general exclusion order, the

Commission has considered:

(1) an established demand for the patented product in the U.S.

market and coqditions of the world market;

( 2 ) the availsbblity of marketing and distribution networks in the

United States for potential foreign manufacturers;

( 3 ) the cost to foreign entrepreneurs of building a facility capable

o f producing the articles;

( 4 ) the number of foreign manufacturers whose facilities could be

retooled t o produce the article; or

(5) the cost to foreign manufacturers of retooling their facility to

produce the articles. 351

The record demonstrates that the demand in the United States for skinless

sausage casings having the characteristics conferred by the ' 4 8 4 patent is

established. There are a number of customers for the casings, and it appears

from the evidence of record that marketing and distribution would not be a

problem for potential importers. Viscofan was able to conclude a distribution

and marketing agreement with an American corporation before it was certain

that its casings were conimercially acceptable in the United States. Although

the record does not indicate that there are a large number of foreign

- 351 Spray Pumps, supra, at 18-19.

17

manufacturers who

the United States

general exclusion

have the capacity to produce skinless sausage casings for

market, this does not preclude the Conunission from issuing a

order.

The principal difficulty with a general exclusion order as the remedy in

this investigation is the potential to disrupt legitimate trade. It is

extremely difficult, if not impossible, to determine from a physical

examination of shirred sausage casings whether they were manufactured in

accordance with the method of the '484 patent. The ALJ's determination that

Viscofan practices the method of the '484 patent was based on an examination

of the casings, microphotographs of pleat patterns, and an analysis of the

operation of various shirring machines. It is unlikely that it will be

feasible for the Customs Service to go through the same process.

have adopted the the solution first taken in Certain Multicellular Plastic

ria, Inv. No. 337-TA-54, USITC Pub. 987, (19791, aff'd sub nom., Sealed Air

- Corn. v. USITC, 645 F.2d 976 (C.C.P.A. 1981).

We therefore

Multicellular Plastic Film also involved infringement of a process patent

where it was impossible to distinguish the product manufactured in accordance

with the patented method from one manufactured by a noninfringing process.

that case, the Commission issued a general exclusion order which provided (in

paragraph 3 of the order) that any persons seeking to import multicellular

plastic film could petition the Commission to institute further proceedings

for the purpose of determining whether the film sought to be imported should

be allowed into the United States. The Commission noted:

In

With respect to film produced by foreign manufacturers who were not respondents in the Conmission's investigation, paragraph 3 is intended to insure that only such film found upon further investigation not to have been manufactured by a process infringing [the claims of the

18

subject patent] will be allowed entry. The effect of paragraph 3 is to place the burden of establishing noninfringement upon would-be importers rather than to require complainant, the aggrieved party in this matter to prove infringement.

- Id. at 23.

Viscofan lias argued that a cease and desist order is the proper remedy in

this investigation. At the threshold of considering the use of a cease and

desist order in the circumstances of this case, the Commission would have to

determine that Viscofan's "new process" for production destined for the United

States is in fact noninfringing as Viscofan claims. Then, some workable means

would have to be found for ensuring that Viscofan uses only this "new process"

for production destined for the United States.

investigation does not give the Commission reason to treat Viscofan's

The record in this I

assurances as the basis for a cease and desist order with the expectiation

that it will be an effective remedy. The Commission does not have the means,

or indeed the jurisdiction, to conduct plant inspections in Spain, as proposed

by Viscofan, n0.r is any Qther workable means apparent. As to determining

whether or not the "new process" infringes the patent, under the

petition-provision of the general exclusion order Viscofan can come before the

Commission and, in a full fact-finding proceeding, demonstrate that its

process does not infringe the claims of the '484 patent. Having been found to

practice a method which infringes the '484 patent, and considering the

shortcomings of the suggested alternatives, this is not an undue burden on

Viscof an.

2 . Investigation No. 337-TA-169

We have determined that the appropriate remedy in this investigation is

the issuance of a Limited exclusion order, barring the importation of small

19

caliber skinless sausage casings manufactured by Viscofan, for a period of ten

years from the date of our order. It is generally accepted that the duration

of relief in a case of misappropriation of trade secrets should be the period

of time it would have taken respondent independently to develop the technology

using lawful means. 3 Milgrim, Trade Secrets S 7.08111 (1981); Certain

Apparatus for the Continuous Production of Copper Rod, Inv. No. 337-TA-52,

USITC Pub. 1017 (1979) at 67. Respondent Viscofan and the IA have made their

analysis in terms of the various elements of trade secret technology discussed

in the ID.

between and among the trade secrets and technology involved, as well as the

ALJ's conclusion that six specific trade secrets were found to have been

misappropriated. It is true that some of those trade secrets consist of

"certain aspects" of a machine, system, or standards. See ID at 360-361.

However, to issue a remedial order based on the time necessary to develop each

such aspect would ignore the fact that Viscofan had the benefit of the entire

machine, system, or set of standards, including non-trade-secret elements,

which it had misappropriated, from which to work in developing its "new

technology." The trade secret aspects are not independent of the

non-trade-secret aspects of the technology involved. Therefore, we have

determined to consider a single independent development time.for the six trade

secrets found by the ALJ to have been misappropriated.

We believe that this approach ignores the interrelationships

Viscofan and the IA have suggested various time periods for independent

development ranging from three to eighteen months. %/

clear what evidence the IA considered in developing these time periods.

Viscofan's recommendations are based on the witness statements submitted with

It is not entirely

36/ See Viscofan brief at 42-43, Brief of the IA at pp. 11-12 of Appendix B.

20

its Brief on remedy, which basically suggest that, given the breadth of the

publicly available information on sausage casing technology, the development

of alternative technology to the misappropriated technology would be a

relatively simple procedure, requiring little time beyond that necessary for

assembling and testing the machines and procedures involved. Union Carbide

argues that Viscofan could never have independently developed a successful

sausage casing technology without the misappropriation, and therefore suggests

that permanent relief would be appropriate in this case. However, Union

Carbide further suggests, based on the evidence of its experts, that given

adequate resources, both financial and engineering, and the impetus to

undertake a risky development project, a shirring technology could be

developed in between nine t o twelve years, and an extrusion technology could ,

be dcveloped in between twelve to fifteen years.

own development of the technology for sausage casing manufacture, including

the trade secret aspects, encompassed more than fifty years, and that the

suggestion of Viscofan's experts that the confidential technology would be a

quick design job is wholly incredible.

Union Carbide notes that its

While we are not satisfied with the evidence of the time period necessary

to develop the trade secret technology in this investigation, on the whole we

find Union Carbide's position most persuasive. Viscofan's assertions

regarding independent development made by Viscofan in the course of its

defense to the misappropriation charge were found by the ALJ to be unsupported

by the evidence.

alternative technology for the misappropriated trade secrets in a relatively

short time would be to give it the benefit of having had the misappropriated

trade secrets for a period of years as a basis from which to work.

To now conclude that Viscofan could have developed

We believe

1.1

thaL Lhis would be a wholly inequitable result. We therefore have determined

that our remedial order should apply for a period of ten years.

Viscofan and the I A contend that a cease and desist order is the only

appropriate remedy in a trade secrets investigation. In the only prior trade

secrets investigation in which the Commission gave a remedy, the Commission

entcred a cease and desist; order. The present case is distinguishable from

- Copper Rod on two grounds. First, the record in Copper Rod indicates that a

personal relationship existed between the parties. Copper Rod, supra at

66-67. No such relationship has been found to exist in the instant case.

While that factor makes a cease and desist order appropriate, other

considerations aside, it does not make a cease and desist order the exclusive

remedy in such cases. Second, and more importantly, the limited exclusion ,

order was not part of the Commission's arsenal of remedies until two years

afLer Copper Rod was decided.

In this case, a cease and desist order would probably be ineffective.

Viscofan has represented that it can put into operation a separate production

line, which does not incorporate the misappropriated trade secrets, use only

that line f o r U.S. production, certify each shipment, and open its plant to

inspection by Commission-appointed experts to ensure that it is not using the

misappropriated trade secrets. Since there is no means by which we can

detccmine from the casings whether they were manufactured by a process which

incorporates the misappropriated trade secrets, something of the sort proposed

by Viscofan would be cal.led for if a cease and desist order were to be

justified. However, as previously stated, on the record in this investigation

the Commission cannot confidently base the remedy on Viscofan's assurances,

and the Conimission has neither the jurisdiction nor means to conduct plant

22

inspections in Spain. Therefore, exclusion is the only remedy which promises

to be reasonably effective

The final issue to be determined with respect to the remedy in this

investigation is when the period of exclusion should commence running. Union

Carbide argues that the period of exclusion should commence running on the

date the Commission issues its order. Viscofan and the I A cite Svntex

Opthalmics. Inc. v. Novicky, Docket No. 84-838 (Fed. Cir. October 3, 1984) for

the proposition that the relief in a trade secrets case should commence

running on the date of the misappropriation. However, the Federal Circuit did

not squarely decide the issue of when the period of injunctive relief should

commence running. In Brunswick Corp. v. Outboard Marine Cow., 404 I.E.28

205, 207 (Ill. 1980) the Illinois Supreme Court noted that "the exact nature I

and duration of the remedy must be tailored to fit the facts of the particular

case." The court indicated that where the defendant had no means of securing

the misappropriated information lawfully, injunctive relief could be entered

even though the defendant had refrained from using the misappropriated

information for a period equal to the theoretical independent development

period.

In its only previous determination on this issue, Copper Rod, supra, the

Commission ordered the period of the remedy to commence running on the date of

entry of the remedial order.

exclusion of Viscofan's casings should run from the date of our order. The

We have determined that the ten year period of

facts of this investigation, particularly the fact that the misappropriation

involved an actual theft of trade secrets, support the conclusion that

Viscofan should not be credited with the time between the misappropriation and

the entry of the Commission's remedial order.

23

C. The public interest

As required by statute, the Commission has considered the effect which

issuance of an exclusion order in this investigation would have "uponsthe

public health and welfare, competitive conditions in the United States

economy, the production of like or directly competitive articles in the United

States, and United States consumers." 19 U.S.C S 1337(d). It is highly

unlikely that exclusion of this product will have an adverse effect on any of,

these public interest factors.

In the public interest portion of its brief, Viscofan has attempted to

resurrect its antitrust arguments. Those issues were heard by the ALJ and

decided against Viscofan and do not merit further consideration.

Demand for sausage casings in the United States is stagnant, and the two

U.S. producers, complainants Teepak and Union Carbide, have ample capacity to

meet the entire domestic demand and distribute their product throughout the

United States.

D. Bonding

Section 337(g) provides for the entry of infringing articles upon the

19 U.S.C. payment of a bond during the 60-day Presidential review period.

1337(g)(3). In determining the amount of the bond, the Commission generally

establishes an amount sufficient to "offset any competitive advantage

resulting from the unfair method of competition or unfair act enjoyed by

persons benefiting from the importation." S. Rep. No. 93-1298, 936 Cong.,

2d Sess. 198 (1974).

We have determined to establish a bond of S5 percent of the entered value

of respondent's skinless sausage casings. The cases complainant Teepak cites

in support; of the imposition of a 100 percent bond involved large, expensive,

24

custom-made machines, of which relatively few were sold. In such a case, a

full value bond seems reasonable. Sausage casings, however, are a relatively

low cost, fungible product, and are sold in large quantities in the United

States.

selling price of Viscofan casings in the United States, we have determined to

establish a 55 percent bond, as suggested by the I A . This figure is based on

the difference between the proposed list price of Viscofan's U.S. distributor,

Brechteen, and the price Brechteen had agreed to pay Viscofan for casings.

Erechteen's proposed list, price was the same as Teepak's and Union Carbide's,

and therefore, this bond would ensure that Viscofan casings imported during

the Presidential review period would be sold for the same price as the

domestic products.

In light of the limited information available as to the likely

I

,

5 9 0 7 7 7 - .

i n .f r i n Q emtm t .

f o r review un th i s i--- 2:.c\e a% well a s the e n t i r e I n i t i a l

Determinaticm. I dn nat ccmc!.ir w:ith the ma.jorit);:'s determination

R ~ r 1 e .X)1 I is pravj. des khat

C o n f: i t j e r ; t i a I. ts LI s i n e c-j 5 i n f c! r in at i i>n i s i n S o r- in at. i un which concerns ar r e l a t e s t o the t rade sec re t s , prixec'n!:scS7 iIperationc,, s t y l e nf works, o r apparatus, or t a .the praduction, sail es, shipments, purchases,

I t. i 5 my opi n i o n t h a t i n f o r m a t i o n c o n c : e r n i ny

i . n f o r m a t . : i o n b e c a u i a e 1 ) it. i s n o t o r d i n a r y f i n a n c i a l i n f o r m a t i o n

and 2 1 w o u l d h a v e t o b e given t o a n y o h e r e q u e s t i n y i t u n d e r t h e

F r e e d o m u+ I n f u r m a t i m A c t

A. T h e Freedom of : [ n f o r - m a t i r ~ n A c t .

Thk F r e e d o m of I n Q n r m a t i o n Act ( " F O X A " ) i s i n t e n d e d t o

p r o v i d e m e m b e r s o f t h e pub]. i c w i t h access t o t h e v a r i o u s

d o c u m e n t . s , + i : L e d w i t h f e d e r a l a g e n c i e s . U n l e s s a n a g e n c y is

g r a n t e d an e x e m p t i o n from F O I A , or unless t h e i n f o r m a t i o n i s

~ i t h i n t h e l i m i t e d class o f i n f o r m a t i o n e x e m p t e d S r o m d i s c l o s u r e

i n FQIA, , t h e a g e n c y mL\:;t mal.::@ t h e i n f o r m a t i o n r e q u e s t e d a v a i l a b l e

t o a n y o n e r e q u e s t i n g i t . T h e C o m m i s s i o n d o e n n o t h a v e a n

a c r o s s - t h e - b o a r d e x e m p t 1 o n + r n m FOIA.

A l t h o u g h there a p p e a r s t o be some s u p p o r t f o r t h e p o s i t i o n

t h ' a t C b n g r e s s p r n v i d e d t h e C o m m i s s i o n w i t h a l i m i t e d e x e m p t i o n i n

T i t l e VI1 ca!%es., t h e r e i s n o s u c h e v i d e n c e i n S e c t i o n 337 cases

a n d the C o m m i s s i o n m u s t act w i t h i n t h e c o n f i n e r ; of FUIA.

.L i n t e r p r e t a t i o n of e x e m p t i o n b (4.) of FOIA, t h e aril y e:.:empt:i an

r el a.vant f c 3 r p u r p o s e s of t h i !s i n q u i r y ,

Exempticx-1 b (4.) p r o v i d e s t h a t FaIA dmes n o t apply t o t r a d e

secretis and c:ommr=.r-cial o r f i n a n c i a l i n f o r m a t i o n o b t a i n e d f r o m a

pei-.zon a n d p r i v i l e g e d or c o n f i d e n t i a l I T h e terc,t w h i c h h a s

evo1:;ed i n .t.I-ie .federal c : o u r t s t o d e t e r m i n e w h e t h e r i n f o r m a t i o n is

bucii nets5 c a n f 1. denti a1 i s w h e t h e r ' t h e r e 1 ease of s u c h i n f ormati on

, .

CI i

bJCXl!.id 1 ) s u b s t a n t i a l l y harm t h e c o m p e t i t i v e p o s i t i o n of t h e f i r m

clr 2 ) i m p a t r t h e a b i l i t y c2.f t . h e agency t o c o l l e c t n e c e s s a r y d a t a

.; r-l the f i..kt\.ire. T .-I

: ~ i . ~ t i s t a r i t i a . l Xy h a r m t . h e c o m p e t i t i v e p o s i t i o n of U n i o n C a r b i d e . As

iJr-ii.or-1 C a r b i d e c o n c e d e s , , zuch d i . = c l o s u r e w o u l d on l y "embarrass. I '

E m b a r r a s s m r n t . f a1 1% f a r s h o r t o f p a s s i n g t h e t h r e s h o l d f o r

a l 1 ow i n 9 r> on d i sc I 13 s u r e of t. h i ,s i n f or mat i o n . ' 4

A E j . f n r t h e a b i l i t y o f t h e C o m m i s s i o n t o g a t h e r n e c e s s a r y

i nf wmati a n i n t h e f u t u r e , t h i 5 a r g u m e n t always p r o v e s t o o much.

1 . National P a r k s a n d C o n s e r v a t i o n 4s.soc. 'v. Morton, 4353 F . 2 d 763, 770 (D.C. C i r . 19741.

2 . 5 .lJ.S.C. 552 (1977).

4, szg I g l c s i a s v. C I A , 525 F . S ~ r p p . 347 {DCDC iSE3l) ( c o n c l u s n r y a n d g e n e r - a l i z e d a l l e g a t i o n s of . c o m p e t i t i v e harm are u n a c c e p t a b l e ) .

I

6 . I n B r i t i s h Airpor - t . ; A c i t h o r i t : , v. U.S. D e p t . S t a t e , 53t:) F.Supp. 46 (D.D.C. 198:l) the cruurt h e l d i n a n FClIk appeal. t h a t in#w-rnat . ion sought. t o b e w i t h h e l d u n d e r t (4! must: - f a l l . w i . 4 h i . n t h e o r d i n a r y m e a n i n g af commercial or f i n a n c i a l .

- 5 -

,

1r.l .fashicxiir-lq a r-emedy c3crr gclal shaeild b e tu balance twc:,

(~ninpetinq and lat2itimate r(mcm-nc1. On the ane hand we do not

w i s h , I : I ~ impose unnecessary 4:utcrr-e mon,i t o r i n g and 1 i t i g a t i o n on

pe t i t i cmer s . Thc g r e a t va:li.ie nf a general exclr.tr,ian order 1.5

that j. k p e r - m i t . 1 ; a pc?tj.tiorrer ti:! have an effecti.ve remedy withoeit

r e q u i r i n g wastefi-tl ser ia l ? i t i y a t i o n , En the other hand i t pose!s

the danger- of excluding i rnporirs i?f products t ha t do not v i o l a t e

the patent - T h i s 1 a t te r concern t E. part:i ci..tl c17rI.y a C i . i t . e i n t h e

cac;~ of a p rocess patent,, zx.ich 3.; t h i s an@, i n which Customs can

n e v w I earn frc3,m ia mere e : . : a m t n a t i r:ln a+ the praduct whet.her c:tr not

i t was pr-adi.rcerJ by a p r o c : e s s which i n f r i n g e s a patent.

because (3f the C(mmi.-l.;ion:'s concern with the possible

,

" b a t h a w i d e s p r e a d p a t t e r n a+ c.inauthcw-i:c;d use of: i t 1 3 p a t e n t e d

i ; : v ~ ~ l i t i c t n and c e r t a i n b u s i n e s s c o n d i t i u n s from w h t ~ h 1:the

n t h e r 1:ha; t h e r e 5 p o n d e n t s t u t h e i n v e s t i g a t i a n may a t t e n i p t . t a

ente r t h e 1J.S. cVar1::et w i t h i n + r i r - i g i n g a r t i c l e s . ' I On t h e r e c o r d

.in t h i s caz.e, T am u n a b l e t o c a n c l i - t d e t h a t e i t h e r s t r a n d uf. t h e

D@ter-minative factor.; in a n a l y z i n g b u s i n e s s c o n d i . t i o n s

qerieraliy r e 1 a t e t.n 1 ) t h e c o s t t o f o r e i g n e n t r e p r e n e u r s u f

en te r i n g the U . S . mar-C:;et. w i t h t h e i n f r i n g i n g p r o d u c t a n d 2 )

whet.hcr t h e r - @ i c-; a n e s t a b l i s h e d demand and m a r k e t i n g 1-letwork for

t h e protli.ict i n t h e U.S.. A1 t h o u g h t h e rel w a n t demand

condition.; h a v e h e e n e s t a b l i s h e d , l i t t l e e v i d e n c e c o n c e r n i n g t h e

._ t h e C.I. !:>. mar-ket has b e e n p r e s e n t e d .

'The lack o f e v i d e n c e w i t h r e s p e c t t o f o r e i g n prn t lucers i s

e v e n mare i m p o r t a n t w i t h r e s p e c t t o t h e alleged " w i d e s p r e a d

p a t t e r n csf u n a u t h o r i z e d use. Unlil.::e o t h e r cases i n w h i c h a

7 I n v . Nu. S37-TA-90 US I TC Pub. 1 1 Y 9 ; 216 1J.S.P.iJ. ,465 (1981).

8. S_eg S p r a y Pumps, a t 18-19 .

- 7 -

1.0. See .^_ -. - C e r t a i n -f"rol l e y Wheel A s s e m b l i e s , Inv . Na. 337--T 'A-- lh i I :lY84)

- 8 -

,

Fi..~r-.tt7f?i'inore, r-lorie a+ the par-tie:; t i > th i< s i n ve s t i g a t i o n

,i.rq!..ied that t.he respnndent V i scaf an waz. 1 i I.::EI';,, tu r e s o r t t o

si.h.ter-.fugc tis undwmii-ie the e f fectxveness u.i: the c3rdi.r. Final. P:J,

i.f Vi scnf an Lmre c,r.tspected a+ such dev i oufjness., then the

Cornmi:ssiim i t e be ing ove r l y npt:imistic about the enfwrceab i l i t y of:

the l im i t ed e:.:cl:.!sion order ars the t rade secret i ssue . The

remedy f o r t h e t r a d e secret misapprapr iat iun spans 1 0 years . The

remedy .for the patent i n . f r /i nqement c:overs n n l y one year. The

1 i ke l j. hood of L ' i ssaCar\ changing i t.s co rpwa te f a r m i n order t o

avo id the ef f ect c~i: the C a ~ n m i Iss i an" I remedy seems much gr-eater- i 1-1

the t rade secret, case because m f the greater time coverage . However- 1.f f :i i d no evi dencr at- argument. that V i s c : a f a n w i I 1

change :i t:s corporate form t o zubvert a I i m i ted e:..:c1~1si on order.

This is an initial determination issued by a Commission

administrative law judge that the Commission determined not

to review. The initial determination has, therefore, become

the Commission determination in this investigation on the

issue of violation of section 337 and 19 U.S.C. !4 1337a.

- See section 210.53(h) of the Commission's Rules of Practice

and Procedure (19 C.F.R. Ei 210.53ch)) and the notice published

in the Federal Register on October 11, 1984 (49 Fed. Reg.

39925).

OPINION

T h i s consol idated patent and trade secret based 5 337 i n v e s t i g a t i o n

der ives from t h e Commission's i n s t i t u t i o n o f two separate inves t igat ions .

I n v e s t i g a t i o n No. 337-TA-148 was based on t h e complaint o f Teepak, Inc.

and i t s p a r e n t , Bufpak Corp., a l l e g i n g t h a t respondent Viscofan , S.A. was

i n v i o l a t i o n o f § 337 by reason o f i t s importation i n t o and sale i n t h e

United States o f s k i n l e s s sausage cas ings made i n Spain i n accordance with

c e r t a i n processes which i n f r i n g e four United States patents owned by

Teepak, causing s u b s t a n t i a l i n j u r y t o t h e domestic sklnless sausage casings

industry. All but one o f t h e p a t e n t s , t h e '484 patent covering the Arnold

process f o r s h i r r i n g sausage casings, were withdrawn by Teepak p r i o r t o t h e

1 hearing. (Findings o f Fact 2 , 3 , 7 , 8 ; - See p. 9 , supra). .. I n v e s t i g a t i o n No. 337-TA-169 was based on t h e complaint o f Union

Carbide Corp., alleging t h a t t h e respondent Viscofan was i n v i o l a t i o n o f ,

§ 337 by reason o f i t s importation i n t o and sale i n t h e United States of

t h e same s k i n l e s s sausage cas ings manufactured i n accordance w i t h processes

which i n f r i n g e two d i f f e r e n t United States patents and embody misappropriated

trade secrets a l l owned by Union Carbide, causing s u b s t a n t i a l i n j u r y t o t h e

rdlevant domestic sklnless sausage c a s i n g s industry. Respondent Hygrade

Food Products Corp. moved t o in tervene i n t h e first i n v e s t i g a t i o n , and was

named a p a r t y respondent by t h e Commission i n t h e second. The two p a t e n t s

were withdrawn by Union Carbide and respondent Hygrade was terminated p r i o r

t o t h e hearing. (Findings o f Fact 4-6; - see pp. 7-9, supra).

The products involved in-Ehis i n v e s t i g a t i o n are small caliber c e l l u -

l o s e sausage casings ( s k i n l e s s sausage castngs) which are used by meatpackers

t o make sausage products, inc luding f rankfur ters . The manufacture of

sausage casings broadly involves s e v e r a l i n t r i c a t e stages requir ing c l o s e

quality c o n t r o l .

n a t u r a l c e l l u l o s e fibers, regenerat ion and extrusion of the cel lophane-l ike

product i n t o tubular f la t s t o c k and t h e f i n i s h i n g process known as s h i r r i n g .

(Findings o f F a c t 9-19).

These stages include t h e preparation of v i s c o s e from I

The Arnold ' 4 8 4 process patent ( t h e s u i t patent) teaches an improve-

ment i n t h e s h i r r i n g process which basically involves h e l i c a l l y p l e a t i n g

and compressing l e n g t h s o f cas ing f l a t stock i n t o s h o r t , self-supporting

tubular sticks.

t h e casings i n t h e automatic sausage-stuff ing equipment used by large

United States meat packers f o r making skinless sausages.

The improved s h i r r i n g process faci l i t iates u t i l i z a t i o n of

The meat packing

, procedure e n t a i l s s l idi 'ng a s t o c k of s h i r r e d casing over t h e s t u f f i n g tube

o f "a sausage s t u f f i n g machine, pumping a meat emulsion i n t o t h e stick which

f i l l s t h e casing, t w l s t l n g t h e cas ing a t i n t e r v a l s t o d e f i n e individual

sausages, and cooking t h e sausages, after which t h e c a s i n g . 1 8 normally

removed, r e s u l t i n g i n a product s o l d as "skinless" sausages o r f r a n k f u r t e r s .

(Findings o f Fact 11, 19).

The trade secrets a t i s s u e owned by Union Carbide cover every phase

of casing manufacture, from composition of t h e v i s c o s e , t o e x t r u s i o n of t h e

tubular casing, and f inishing with s h i r r i n g operations.

trade secrets concern s e v e r a l specific aspects i n each stage o f production,

including standards and s p e c i f i c a t i o n s , and t h e design and c o n s t r u c t i o n of

p a r t i c u l a r pieces o f machinery and equipment.

These asserted

The skinless sausage casigg-market i n t h e United States i s oligopo-

l i s t ic , with Union Carbide add Teepak as t h e dominant p a r t i c i p a n t s ,

2 13

V a l i d i t y of t h e '484 Patent - Although t h e i s s u e o f t h e v a l i d i t y o f t h e s u i t patent under 35 U.S.C.

(5 1lZAj was r a i s e d by respondent V i s c o f a n i n i t s prehearing statement

and in its post-hearing memorandum, t h e record i n t h i s i n v e s t i g a t i o n i s

devoid of any d i r e c t evidence on t h i s i s s u e , as t o which respondents have

t h e burden o f proof under t h e s t a t u t o r y presumption of patent v a l i d i t y .

(See - Viscofan PHS, p. 13; PB pp. 14-15). 35 U.S.C. 5 282.

Never the less , i n i t s post-hearing b r i e f , V iscofan c h a l l e n g e s t h e

v a l i d i t y o f t h e s u i t p a t e n t an t h e a l l e g e d grounds t h a t clalm 1 o f t h e

patent i s so vague and i n d e f i n i t e "as t o make i t impossible t o determine

i t s n a t u r e , t h u s rendering It i n v a l i d under 35 U.S.C. 5 112." The only

4 r a t i o n a l e presented i n support o f t h i s a l l e g a t i o n i s t h a t " d i f f e r e n t and

c o 6 t r a d i c t o r y i n t e r p r e t a t i o n s have been o f f e r e d f o r 'applying a p l u r a l i t y

of shirring forces ... cont inuously ' and f o r 'a s u b s t a n t i a l l y cont inuous

h e l i c a l line.'"

Binney C Smith, 317 U.S. 228 (1942) . wherein t h e Supreme Court struck down

V i s c o f a n relies on t h e l e g a l a u t h o r i t y o f United Carbon V.

a patent under 5 112 because some o f t h e patent claims were so i n d e f i n i t e .

as not t o g i v e t h e n o t i c e required by t h e s t a t u t e .

The 5 112 requirement o f d e f i n i t e n e s s i n p a t e n t claims i s essentially

a requirement f o r p r e c i s i o n and d e f i n i t e n e s s o f claim language so t h a t t h e

claims make clear what s u b j e c t matter they encompass and thus what the

patent prec ludes o t h e r s from doing. A p p l i c a t i o n o f S p i l l e r , 182 U.S.P.Q.

614 (C.C.P.A. 1974).

- 1/ 35 U.S.C. 8 112 provides i n p e r t i n e n t p a r t :

The s p e c i f i c a t i o n s h a l l coTclude w i t h one o r more claims par- t i c u l a r l y p o i n t i n g o u t and d i s t i n c t l y claiming t h e s u b j e c t matter which t h e a p p l i c a n t regards as h i s invent ion .

The requirement i s designed both t o p r o t e c t t h e

_-

214

patentee and t o encourage experimentat ion I n areas not covered by t h e

patent. Courts are required to r e c o n c i l e t h e s e c o n f l i c t i n g concepts .

Corning Glass Works V. Anchor Hocking Glass Corp., 153 U.S.P.Q. 1 (3rd C l r .

1967). cert. denied 389 U.S. 826 (1967). Two primary purposes are served ,

namely, t h a t t h o s e s k i l l e d i n the ar t must be a b l e t o understand and apply

t h e teachings o f t h e invent ion and e n t e r p r i s e , and t h a t experimentat ion must

not be discouraged by c r e a t i o n o f an area o f u n c e r t a i n t y as t o t h e scope o f

the invent ion. On t h e o t h e r hand, t h e p o l i c y o f t h e patent system grant ing

p r o t e c t i o n t o v a l i d invent ions must not be defea ted by according p r o t e c t i o n

o n l y t o those p a t e n t s capable o f precise d e f i n i t i o n . Georgia-Paci f ic Corp.

V. U.S. Plywood Corp., 118 U.S.P.Q. 122 (2d C l r . 1958). cert. denied 358

U.S. 884 (1958). I

Here, Viscofan charges t h a t claim 1 i s ambiguous and i n c o n s i s t e n t as

i n t e r p r e t e d by complainant Teepak i n s o f a r as complainant would have i t

c o v e r not o n l y Teepak's s h i r r i n g p r o c e s s , which t r u l y a p p l i e s s h i r r i n g

f o r c e s "cont inuously a t spaced p o i n t s around t h e per iphery of t h e c a s i n g

and ... a long a s u b s t a n t i a l l y continuous h e l i c a l l i n e " ; but a160 Viscofan 's

stepped r i g h t a n g l e stat ic head machine, which has sets o f two paddle t e e t h

separated by a space and so shaped and p o s i t i o n e d t h a t t h e e l e v a t e d p o r t i o n

o f one t o o t h mates wi th t h e e l e v a t e d p o r t i o n o f another t o o t h on t h e next

wheel. (F indings o f F a c t 49, 50, 53, 54, 60, 61). Viscofan contends t h a t

t h e resulting a p p l i c a t i o n o f s h i r r i n g f o r c e s , i n a series o f planes o r

steps, as t h e casing i n c o n t a c t with t h e t e e t h jumps o r moves from one

e l e v a t e d t o o t h t o t h e n e x t , does n o t meet t h e requirement o f claim 1 t h a t

t h e s h i r r i n g f o r c e s apply cont inuously around t h e per iphery and along a

s u b s t a n t i a l l y continuous h e l i c a l l i n e . This c o n t e n t i o n , which i s a l s o p a r t

of Viscofan ' s noninfringement argument, i s not well founded o r supported by

t h e record. 215

In t h e first place, Viscofan ' s c o n t e n t i o n erroneously assumes t h a t

no s h i r r i n g f o r c e i s appl ied t o t h e c a s i n g in between t h e e l e v a t e d p o r t i o n s

o f t h e mating t e e t h in s u c c e s s i v e wheels.

f o r c e s are appl ied by t h e e levated p o r t i o n s , some f o r c e s are a l s o appl ied

by t h e tooth area i n between t h e e l e v a t e d port ions . ( S t o r y , Tr. 1422-29;

Cory, Tr. 137-40).

Although t h e primary s h i r r i n g

Indeed, a t t h e hear ing M r . S tory drew a diagram d e f i n i n g

the spaced-apart s h i r r i n g f o r c e p o i n t s which are pos i t ioned a t an a n g l e to

the axis of the casing movement and showed how t h e s e p o i n t s d i r e c t l y

c o i n c i d e with t h e s h i r r i n g f o r c e p o i n t s on t h e diagonal lugs ( t e e t h )

i l l u s t r a t e d in t h e s u i t patent . (F indings o f F a c t 97-99),

Viscofan persists i n a s s e r t i n g t h a t t h e "wear pat terns" on t h e

d stepped r i g h t a n g l e t e e t h in i t s process i n d i c a t e t h a t t h e f o r c e s are

appl ied a long t h e o u t e r s u r f a c e o r t h e foremost s u r f a c e of t h e f irst t o o t h

e l e v a t e d s e c t i o n f o r a d i s t a n c e of l i t t l e more than halfway a c r o s s t h e

t o o t h and then are s h i f t e d t o t h e e l e v a t e d p o r t i o n o f t h e second t o o t h ;

t h a t t h e f o r c e s are thus a p p l i e d by t h e stepped r i g h t angled t e e t h in a

series o f steps with a d i s c o n t i n u i t y i n t h e middle of each t o o t h where t h e

f o r c e changes from t h e f r o n t s u r f a c e o f t h e f irst t o o t h e l e v a t e d p o r t i o n t o

t h e f r o n t s u r f a c e o f t h e second t o o t h e l e v a t e d port ion.

93-96). The o n l y evidence supporting this content ion i s t h e d e p o s i t i o n

test imony of L u i s Michelena, who i n d i c a t e d t h a t wheels have t o b e replaced

o r r e f a c e d because o f wear on t h e l u g s at t h e i r p o i n t of c o n t a c t wi th t h e

cas ing .

t h e used Teepak wheels in evidence a l s o show wear at t h e respective e l e v a t e d

por t ions o f t h e t e e t h and l i t t l e wear i n between (TCPX 69). Mr. S t o r y

concluded t h a t Viscofan ' s stepped r i g h t a n g l e wheels would show t h e same

wear pat tern . ( S t o r y , Tt. 1428-29; VPX 3).

(Findings o f Fact

(Finding o f Fact 92). But t h i s wear p a t t e r n i s i n c o n c l u s i v e , s i n c e

216

Viscofan f u r t h e r contends t h a t claim 1 o f t h e s u i t pa tent i s ambiguous

because the term " s u b s t a n t i a l l y continuous h e l i c a l l i n e " i s i n t e r p r e t e d by

Teepak as covering "a series o f s t e p s , " which, i n Viscofan 's view, d e s c r i b e s

t h e a p p l i c a t i o n o f s h i r r i n g f o r c e s i n i t s stat ic head machine and which i s

"completely f o r e i g n t o t h e patent s p e c i f i c a t i o n s and ... reads on t h e p r i o r

art." (Viscofan 's Response t o Complainants' Post-Hearing S ta tements , p. 10).

I n s h o r t , V iscofan seeks t o i d e n t i f y t h e form o f a p p l i c a t i o n o f s h i r r i n g

f o r c e s i n i t s process with t h a t descr ibed i n the p r i o r art B l i z z a r d

and Matecki p a t e n t s based on t h e similar s h i r r p a t t e r n s i n t h e p l e a t s o f

t h e c a s i n g produced by t h e s e p r o c e s s e s , which Viscofan d e s c r i b e s as "a

discont inuous s p i r a l wi th many breaks and in tervening f o l d s . "

PB, p. 8).

(Viscofan 's C.

,

This a l l e g e d i d e n t i t y between B l izzard ' s and Viscofan ' s s h i r r i n g

processes i n t h e a p p l i c a t i o n o f s h i r r i n g f o r c e s i s not sus ta ined by a

preponderance o f the evidence o f record. Comparison o f t h e photographs o f

c r o s s - s e c t i o n s o f the s h i r r e d c a s i n g s produced by each p r o c e s s , considered

i n t h e c o n t e x t o f t h e B l i z z a r d and Arnold p a t e n t s , and evidence o f d i f f e r e n c e s

i n t h e p h y s i c a l r e l a t i o n s h i p and i n t e r a c t i o n between t h e wheel lugs o r

t e e t h and t h e c a s i n g i n t h e processes taught by t h e s e two p a t e n t s , shows

t h a t t h e casing p l e a t p a t t e r n s made by Viscofan 's s h i r r i n g p r o c e s s bear a

c l o s e r resemblance t o t h e c a s i n g s h i r r e d by complainants ' process than to

t h e c a s i n g s h i r r e d by B l izzard ' s process . S p e c i f i c a l l y , photographs TCX 5

and 6 o f Viscofan ' s s h i r r e d casing show a mixture o f major ( long) pleats

and f a i r l y uniformly d i s t r i b u t e d minor ( s h o r t ) p l e a t s , comparable t o

complainants ' s h i r r e d casings shown i n photographs TCX 7 and 4, r e s p e c t i v e l y .

The p l e a t p a t t e r n s shown i n t h e s e photographs o f Viscofan ' s and complainants '

- -

21 7

c a s i n g s are d i s t i n g u i s h a b l e and d i s t i n c t l y d i f f e r e n t from t h e greater

number and uneven d i s t r i b u t i o n o f minor pleats ( i . e . , " shor t breaks

and intervening f o l d s " ) shown i n photograph TCX 3 o f t h e Bl izzard/Matecki

s h i r r e d casing.

TCX 5 and 6 a l s o appears t o have fewer major pleats and more unevenly

d i s t r i b u t e d minor pleats than complainants' c a s i n g as depic ted i n TCX 7 ,

t h e r e i s a p e r c e p t i b l e d i f f e r e n c e , a t least i n degree , between Viscofan ' s

Even though Viscofan ' s c a s i n g , as depic ted i n photographs

and B l i z z a r d ' s casings i n t h e s e respects, as well as an even more pronounced

appearance of compactness i n Viscofan ' s c a s i n g compared with Bl lzzard/Matecki ' s

cas ing . (F indings o f Fact 95, 96; TCX 3).

These p e r c e p t i b l e d i f f e r e n c e s i n t h e c a s i n g s produced by t h e B l i z z a r d

I and V i s c o f a n s h i r r i n g p r o c e s s e s reasonably reflect and are c o n s i s t e n t wi th

Teepak's argument t h a t claim 1 o f t h e s u i t p a t e n t , f a i r l y i n t e r p r e t e d ,

adequate ly d e f i n e s and g i v e s n o t i c e of t h e n a t u r e o f t h e " s u b s t a n t i a l l y

cont inuous h e l i c a l l i n e " taught and required by t h e s u i t patent . Indeed,

t h e s u i t p a t e n t i t s e l f specifies t h a t t h e improvement i n t h e s h i r r i n g

process taught i s t h e a p p l i c a t i o n o f s h i r r i n g f o r c e s "cont inuously around

t h e per iphery o f t h e casing so t h a t t h e c a s i n g would be formed i n t o a t r u e

h e l i c a l p l e a t w i t h s u b s t a n t i a l l y no i n t e r v e n i n g f o l d s o c c u r r i n g a t pleats

between t h e a p p l i c a t i o n o f s u c c e s s i v e s h i r r i n g forces . "

11. 36-43). The p a t e n t s p e c i f i c a t i o n reiterates and e x p l a i n s t h e continuous

(TCX 1, col . 2,

h e l i c a l l i n e teaching :

The a n g l e o f t h e s h i r r i n g l u g s or o t h e r s h i r r i n g force- applying means i s such t h a t as s a i d l u g s o r means are moved s u c c e s s i v e l y i n t o enegement wi th t h e c a s i n g they engage t h e c a s i n g a long a s u b s t a n t i a l l y cont inuous h e l i c a l l i n e and thus form s u b s t a n t i a l l y cont inuous h e l i c a l p l e a t s i n t h e c a s i n g . (Col. 3, 11. 20-25).

.... 218

This invent ion i s based upon my discovery t h a t s y n t h e t i c sausage casings can be s h i r r e d i n a more compact s t r a i g h t s t rand having a more s a t i s f a c t o r y d i s t r i b u t i o n o f t h e s h i r r e d p l e a t s by a p p l i c a t i o n o f s h i r r i n g f o r c e s to an i n f l a t e d c a s i n g a long a s u b s t a n t i a l l y continuous h e l i c a l l i n e around t h e cas ing . (Col. 4, 11. 15-21).

The a p p l i c a t i o n of s h i r r i n g f o r c e s by s h i r r i n g l u g s i s along a subs t a n t i a l l y h e l i c a l l i n e around t h e per iphery o f t h e c a s i n g and causes t h e c a s i n g t o be . sh1rred ia s u b s t a n t i a l l y continuous h e l i c a l p l e a t s . (Col. 6 , 11. 39-42).

Viscofan 's r e l i a n c e on t h e previously r e f e r e n c e d United Carbon case

i s l i k e w i s e misplaced. United Carbon i s d i s t i n g u i s h a b l e from t h i s case

i n t h a t t h e former i n v o l v e s not p r o c e s s , but product claims expressed

i n terms o f " i n a c c u r a t e suggest ions o f t h e f u n c t i o n o f t h e product , and

f a l l a f o u l o f t h e rule that a patentee may not broaden h i s claims by I

d e s c r i b i n g t h e product i n terms o f function."

- Smith, 317 U.S. a t 234. In a d d i t i o n , t h e s p e c i f i c a t i o n i n United Carbon,

u n l i k e those i n t h e case at b a r , was not h e l p f u l in c l a r i f y i n g t h e claims

o r cur ing t h e d e f e c t s . Id . a t 236.

United Carbon V. Binney C

- Having found t h a t t h e a p p l i c a t i o n o f s u i t patent claim 1 t o Vlscofan's

s h i r r i n g p r o c e s s i s reasonable and c o n s i s t e n t with t h e claims and s p e c i f i -

c a t i o n of t h e s u i t patent and i t s prosecut ion h i s t o r y and t h e p e r t i n e n t

e v i d e n t i a r y r e c o r d , I f u r t h e r f i n d t h a t respondent has not sus ta ined i t s

burden o f proving claim l * o r any o t h e r c l a i m , o f t h e s u i t patent i n v a l i d

f o r i n d e f i n i t e n e s s ur.der 35 U.S.C. % 112. ( S e e g e n e r a l l y , F indings of Fact

29-105) . T h i s conc lus ion i s r e i n f o r c e d by t h e fact t h a t t h e s u i t patent issued

after a PTO r e j e c t i o n under 0 112 was overcome. During prosecut ion of

219

t h e s u i t p a t e n t , o r i g i n a l claim 1 was rejected by t h e PTO examiner under 35

,

U.S.C. § 112 as being vague and i n d e f i n i t e in t h a t t h e claim words " f o r c e

i s s e q u e n t i a l l y and cont inuously a p p l i e d " appeared t o be contradic tory .

( V U 470, f irst Office Act ion dated 9/24/68) .

t h e words " including applying a p l u r a l i t y " replaced t h e connect ive words

preceding t h e words " s h i r r i n g f o r c e s " i n l i n e two o f present claim 1 , and

a p p l i c a n t ' 8 a t t o r n e y pointed out

In a subsequent amendment,

t h a t t h e process claims i n t h i s case are g e n e r a l l y a l lowable over t h e p r i o r art f o r t h e same reasons submi t d i n support o f t h e al lowance o f t h e parent case .- E ' The p r i o r art does not d i s c l o s e applying a p l u r a l i t y o f s h i r r i n g f o r c e s s e q u e n t i a l l y and cont inuously at spaced p o i n t s around t h e per iphery o f t h e c a s i n g and p r o g r e s s i v e l y l o n g i t u d i n a l l y o f t h e c a s i n g a long a s u b s t a n t i a l l y continuous h e l i c a l l i n e .

(k 470 , h n d m e n t and Remarks dated 11/26/68). The presumption o f v a l i d i t y

o f a patent i s greatly strengthened when t h e inventor ' s claims are s u b j e c t e d

t o c l o s e and c a r e f u l s c r u t i n y i n t h e PTO, and especially when t h e same

s t a t u t o r y defenses t o patent v a l i d i t y have been considered and r e j e c t e d by

t h e PTO. Modern Products Supply Co. V. Drachenborg, 68 U.S.P.Q. 10 ( 6 t h C i r .

1945) , cert. denied 327 U.S. 806 ( 1 9 4 6 ) ; Hunt V. Armour & C O O , 88 U.S.P.Q. 53 - ( 7 t h C i r . 1951).

- 2/ The parent case i s U.S. L e t t e r s Patent 3 , 4 5 4 , 9 8 2 , S e r i a l No. 5 6 4 , 9 6 1 , i s s u e d August 1 9 , 1969 , from which t h e s u i t patent was divided. C l a i m 8 in t h e parent patent a p p l i c a t i o n (claim 1 i n t h e s u i t patent ) was i n i t i a l l y rejected by t-0 examiner under 35 U.S.C. 0 103 as being unpatentable o v e r t h e Ziolko '398 patent for reasons (subsequently overcome) not p e r t i n e n t h e r e , but d i s c u s s e d under patent h i s t o r y , i n f r a . ( S e e - Findings o f Fact 67-70).

22 0

Infringement o f t h e '484 Patent

Complainant Teepak a l l e g e s t h a t respondent Viscofan l i t e r a l l y in f r inges

t h e claims of t h e s u i t patent by t h e unauthorized importat ion and sale i n

t h e United S t a t e s o f s k i n l e s s sausage c a s i n g s made with Vlscofan's static

head and/or r o t a t i n g head s h i r r i n g machines which u t i l i z e Teepak's patented

process f o r s h i r r i n g sausage cas ings . 35 U.S.C. 271.- 3/

The s u i t patent c o n t a i n s f i v e claims, o f which Teepak a l l e g e s claims

1, 2, 3 , and 5 are inf r inged. However, t h e p a r t i e s s t i p u l a t e d claim l..as

t h e r e p r e s e n t a t i v e claim f o r t h e purposes o f hear ing and ad judica t ion .

(Prehearing Conf. Tr. 280). Complainant, as the proponent, has t h e burden

of proof on t h i s i s s u e . The r e l e v a n t s u i t patent claims provide as fol lows: 1.

1. A p r o c e s s f o r s h i r r i n g s y n t h e t i c sausage casings inc luding applying a p l u r a l i t y o f s h i r r i n g f o r c e s s e q u e n t i a l l y and cont inuously a t spaced p o i n t s around t h e per iphery o f t h e casing, and p r o g r e s s i v e l y l o n g i t u d i n a l l y of t h e c a s i n g , along a s u b s t a n t i a l l y continuous h e l i c a l l i n e .

2. A p r o c e s s as def ined i n claim 1 i n which t h e s h i r r i n g f o r c e s are appl ied i n d i s c r e t e segments o f a h e l i c a l l i n e .

3. A process as def ined i n claim 2 i n which t h e s h i r r i n g f o r c e s are appl ied equiangular ly around t h e per iphery o f t h e casing being s h i r r e d , each o f s a i d s h i r r i n g f o r c e s being appl ied a t an angle t o t h e d i r e c t i o n o f l o n g i t u d i n a l movement o f s a i d casing t o cooperate i n applying s a i d s h i r r i n g f o r c e s a long s a i d h e l i c a l l i n e .

5. A p r o c e s s as def ined i n claim 1 i n which t h e c a s i n g i s i n f l a t e d p r i o r to a p p l i c a t i o n o f t h e s h i r r i n g forces t h e r e t o .

(TCX 1).

- 3/ 35 U.S.C. 0 271 provides i n p e r t i n e n t p a r t as fol lows:

(a) . . . whoever without ' author i ty makes, uses o r sells any patented i n v e n t i o n , w i t h i n t h e United S t a t e s during t h e term o f t h e patent t h e r e f o r , i n f r i n g e s t h e patent .

22 1

Prosecut ion His torv of t h e S u i t Patent

The ‘484 patent i s sued August 19, 1969, a s a d i v i s i o n of inventor-

a p p l i c a n t L i o n e l C. Arnold‘s o r i g i n a l patent a p p l i c a t i o n f i l e d July 13,

1966, (Finding of F a c t 29). There were 14 claims i n t h e parent a p p l i c a t i o n ,

of which claims 1-7, r e l a t i n g t o t h e process f o r s h i r r i n g sausage cas ings ,

were divided o u t i n t o t h e s u i t patent pursuant t o the r e s t r i c t i o n imposed

by t h e PTO examiner. (F inding o f F a c t 67). Claims 8-14 o f t h e parent

a p p l i c a t i o n r e l a t e d t o t h e apparatus f o r s h i r r i n g - s a u s a g e c a s i n g s , of which

claim 8 reads as f o l l o w s :

An apparatus f o r s h i r r i n g s y n t h e t i c tubular c a s i n g comprising a p l u r a l i t y o f means t o apply a s h i r r i n g f o r c e t o c a s i n g , s a i d force-applying means being pos i t ioned equiangular ly around t h e per iphery o f t h e c a s i n g being s h i r r e d , and s a i d force-applying means engagable wi th the c a s i n g t o apply a s h i r r i n g f o r c e a long a s u b s t a n t i a l l y continuous h e l i c a l l i n e .

,

(Finding of F a c t 68).

O r i g i n a l claim 8, among o t h e r s i n t h e parent a p p l i c a t i o n , were r e j e c t e d

by t h e P T O examiner under 35 U.S.C. 0 103 as being unpatentable over the

Ziolko (‘398) p a t e n t , The examiner s t a t e d t h a t “ [ i l t i s obvious from t h e

p o s i t i o n of t h e h e l i c a l b l a d e s , as seen in F i g u r e s 3, 24 and 25, that t h e

s h i r r i n g f o r c e s w i l l be a long a continuous h e l i c a l l i n e . “ (Findings o f

F a c t 68-69). The a p p l i c a n t s u c c e s s f u l l y overcame t h i s o b j e c t i o n t o o r i g i n a l

claim 8 by i n s e r t i n g t h e words “ s u b s t a n t i a l l y continuous“ b e f o r e t h e words

“ s h i r r i n g f o r c e ” , e i g h t words from t h e end o f t h e claim. (Finding o f F a c t

70). In h i s accompanying remarks, a p p l i c a n t ’ s a t t o r n e y took t h e p o s i t i o n

t h a t t h e Ziolko r e f e r e n c e d i d . n o t -- a n t i c i p a t e t h e a p p l i c a n t ‘ s i n v e n t i o n o r

provide a b a s i s from which t h e invent ion would b e obvious t o one of ordinary

s k i l l in t h e art. He f u r t h e r explained i n p e r t i n e n t part as fol lows:

222

... t h e invent ion d i s c l o s e d and claimed i n t h i s a p p l i - c a t i o n involves t h e a p p l i c a t i o n o f s h i r r i n g f o r c e s along a s u b s t a n t i a l l y continuous h e l i c a l l i n e and involves t h e a p p l i c a t i o n o f s u b s t a n t i a l l y continuous s h i r r i n g forces. . . . [T lhe s h i r r i n g apparatus o f Ziolko i n v o l v e s t h e use o f s h i r r i n g wheels having s o f t rubber f l e x i b l e ' f i n g e r s ' of long bending radius . The s h i r r i n g ' f i n g e r s ' o f Z i o l k o , whi le being disposed at an a n g l e o r a p a r t i a l h e l i x , wipe a long t h e mandrel and do n o t e n c l o s e t h e cas ing p e r i p h e r a l l y . The views shown i n F i g s . 1, 2 and 3 o f Zlolko show s h i r r i n g ' f i n g e r s ' which are obviously f l a t a t t h e i r periphery r a t h e r than forming a c i r c u l a r enclosure.. . . (T lhe ehitrf-ng ' f ingers ' of Z io lko probably do not e n c l o s e more than about h a l f t h e per iphery o f t h e c a s i n g being sh i r red . The apparatus o f Zlolko t h e r e f o r e involves t h e a p p l i c a t i o n o f d iscont inuous s h i r r i n g f o r c e s which may b e p a r t i a l l y h e l i c a l i n appl l - c a t i o n but does n o t involve t h e a p p l i c a t i o n o f s h i r r i n g forces which are s u b s t a n t i a l l y cont inuous, 1.e.. around t h e e n t i r e per iphery o f t h e c a s i n g being s h i r r e d , and which are appl ied along a s u b s t a n t i a l l y continuous h e l i c a l l i n e .

, (VRX 470, Remarks dated September 19, 1968). Following t h i s amendment t o

o r i g i n a l claim 8, among o t h e r s , t h e parent patent i s sued on July 15, 1969

as t h e '892 patent . (VRX 469). The d i v i s i o n a l '484 p a t e n t i s sued August

19, 1969. (Finding o f F a c t 7 3 ) .

I n i t s b r i e f , V iscofan asserts t h a t t h e foregoing Amendment and

Remarks p e r t i n e n t t o o r i g i n a l claim 8 i n t h e parent p a t e n t , which c l a i m has

- n o t d iv ided o u t to become p a r t o f t h e s u i t p a t e n t , "def ined language and

l i m i t a t i o n s common i n t h e claims i n both t h e parent and d i v i s i o n a l . "

(Vlscofan PB, p. 4). This i s not s t r i c t l y t r u e , s i n c e o r i g i n a l claim 8 was

never a s s e r t e d as , and i s not now, a claim o f t h e s u i t patent . The r e f e r e n c e

t o s h i r r i n g forces i n claim 1 o f t h e s u i t p a t e n t reads "a p l u r a l i t y of

s h i r r i n g f o r c e s s e q u e n t i a l l y and cont inuous ly a t spaced p o i n t s around t h e

per iphery o f t h e c a s i n g , " etc. The o n l y amendment t o claim 1, as previous ly

d iscussed under t h e v a l i d i t y s e c t i o n o f t h i s Opinion, supra , was t h e word

" p l u r a l i t y . " Yet Viscofan sugges ts t h a t t h e above quoted remarks of

22 3

9

appl icant ' s a t t o r n e y , which r e s u l t e d i n overcoming t h e PTO examiner's

r e j e c t i o n o f o r i g i n a l claim 8, among o t h e r claims, o f the parent p a t e n t ,

has worked some form o f f i l e wrapper e s t o p p e l , precluding Teepak from

arguing t h e a p p l i c a b i l i t y of claim 1 o f t h e s u i t patent t o Viscofan 's

process f o r manufacturing s k i n l e s s sausage casings.

The apparent r a t i o n a l e of Viscofan's f i l e wrapper es toppel argument,

which i s not e a s i l y grasped, i s t h a t t h e patent a p p l i c a n t , is estopped

because it argued t o restrict i t s i n v e n t i v e improvement to t h e substan-

t i a l l y continuous a p p l i c a t i o n o f s h i r r i n g f o r c e s t o t h e c a s i n g being

s h i r r e d .

o b j e c t i o n t h a t t h e " s u b s t a n t i a l l y continuous h e l i c a l l i n e " provis ion i n

The a p p l i c a n t argued t h i s po int i n o r d e r t o overcome t h e PTO's

, claim 8 of t h e parent patent was obvious in view o f t h e p o s i t i o n o f t h e

h e i i c a l b lades d e p i c t e d i n Ziolko 's patent on an apparatus f o r s h i r r i n g

c a s i n g , which i n d i c a t e d t h a t t h e s h i r r i n g f o r c e s would be appl ied a long a

continuous h e l i c a l l i n e . The legal effect o f t h e subsequent amendment and

remarks by a p p l i c a n t ' s counsel with r e s p e c t t o claim 8 was simply t o add

t h e requirement t h a t a p p l i c a t i o n o f t h e s h i r r i n g f o r c e a long a s u b s t a n t i a l l y

continuous h e l i c a l l i n e o f t h e c a s i n g had t o be " s u b s t a n t i a l l y continuous"

i n a manner d i s t i n g u i s h a b l e from Ziolko. by t h e use T h i s i s accomplished

of l u g s on t h e s h i r r i n g wheels , which were so curved and p o s i t i o n e d as

t o e n c l o s e t h e e n t i r e periphery o f t h e casing being s h i r r e d , thus a s s u r i n g

t h e a p p l f c a t i o n of e u b s t a n t i a l l y continuous s h i r r i n g f o r c e s on t h e cas ing .

( V U 4 7 0 ) .

It i s d i f f i c u l t t o see how t h i s requirement added t o claim 8 of t h e parent ._ _ .

patent can be i n t e r p r e t e d t o affect t h e meaning of claim 1 o f t h e d i v i s i o n a l

s u i t patent so as t o exclude Viscofan from i t s purview. Claim 1 has always

22 4

required t h a t t h e s h i r r i n g f o r c e s apply " s e q u e n t i a l l y and cont inuously at

spaced p o i n t s around t h e per iphery o f t h e c a s i n g , and p r o g r e s s i v e l y longi -

t u d i n a l l y o f t h e casing, a long a s u b s t a n t i a l l y continuous h e l i c a l l ine . "

Assudng t h a t t h e amendment and remarks p e r t i n e n t t o apparatus claim 8

o f t h e parent patent may b e considered i n const ru ing t h e scope and effect

o f p r o c e s s claim 1 o f - - t h e s u i t p a t e n t , i t would b e r e a s o n a b l e to -const rue

t h e "cont inuously" i n claim 1, r e f e r e n c i n g f o r c e a p p l i c a t i o n , as meaning

" s u b s t a n t i a l l y continuously."

claim 8 o f t h e parent patent was intended t o reflect t h e improved s h i r r i n g

technology f o r maximizing t h e cont inous a p p l i c a t i o n o f s h i r t i n g f o r c e s t o

t h e . c a s i n g by more complete ly e n c l o s i n g t h e c a s i n g wi th force-applying

s h i r r i n g l u g s , t h e a d d i t i o n o f t h e word " s u b s t a n t l a l l y " t o the a l ready

e x i s t i n g word "continuous" i n c l a i m 1 o f t h e s u i t patent conceivably could

lead t o a broader c o n s t r u c t i o n being placed on t h e word "continuous".

Although t h e a d d i t i o n o f t h i s requirement i n

Contrary t o t h e t h r u s t o f Viscofan ' s argument, such a c o n s t r u c t i o n

would tend t o be more i n c l u s i v e , r a t h e r than e x c l u s i v e , o f processes f o r

s h i r r i n g sausage cas ings .

claim 1 o f t h e s u i t p a t e n t , as i s o r as v i c a r i o u s l y amended, cannot reasonably

b e construed t o exclude a s h i r r i n g process such as Viscofan ' s , which

c l e a r l y embodies a means o f f o r c e a p p l i c a t i o n , curve-toothed s h i r r i n g l u g s

e n t i r e l y e n c l o s i n g t h e casing, no less cont inuous than t h e process taught

by t h e s u i t patent prosecuted by a p p l i c a n t ' s counse l b e f o r e t h e PTO.

(Findings of F a c t 57-62. 7 4 - 8 L 8 7 - 9 0 ) .

I n any e v e n t , t h e f o r c e a p p l i c a t i o n provis ion o f

22 5

The Invent ion o f t h e Arnold Patent

The Arnold i n v e n t i o n taught by t h e s u i t patent has the p r i n c i p a l

o b j e c t of improving t h e method o f applying s h i r r i n g f o r c e s t o t h e sausage

casing being s h i r r e d so as t o produce a more compact, s t r a i g h t and r i g i d

s t i c k o f s h i r r e d cas ing . This type of s h i r r i n g met the need o f t h e meat-

packing industry f o r a b e t t e r q u a l i t y s t i c k t o be used with "Frank-A-

Matic" automatic meat-s tuff ing machines. (F indings o f F a c t 40-42, 46-50).

The s h i r r i n g o f sausage c a s i n g s i n order t o s t u f f t h e c a s i n g s with

meat $8 an o l d and f a i r l y complex a r t , as i n d i c a t e d by t h e p r i o r art

p a t e n t s considered by t h e PTO during prosecut ion o f t h e s u i t patent . (VRX

470). The Arnold invent ion can b e s t be understood i n terms o f t h e improve-

ment it teaches i n t h e shlrring f o r c e a p p l i c a t i o n over t h e p r i o r art i n t h e # - *

B l i z z a r d '713, ' 715 and '201 p a t e n t s , and t h e Matecki '949 and '574 p a t e n t s ,

which were i n commercial use p r i o r t o Arnold's invent ion. (F indings o f

F a c t 30, 32-39).

The B l i z z a r d p a t e n t s d i s c l o s e a process o f s h i r r i n g an i n f l a t e d

c a s i n g p o s i t i o n e d around a mandrel.

t h e a p p l i c a t i o n o f f o r c e from a series o f l u g s on two o r more b e l t s

pos i t ioned around t h e casing.

b e l t are poe l t ioned t o correspond t o t h e spaces between t h e l u g s on

The s h i r r i n g i s accomplished through

The b e l t s are a l i g n e d so t h a t l u g s o f each

t h e o t h e r b e l t ( 8 ) . The lugs are spaced a p a r t a long t h e i n f l a t e d c a s i n g a

d i s t a n c e about equal t o t h e width o f t h e l u g s and t h e i r s taggered r e l a t i o n

causes t h e s h i r r i n g a c t i o n t o t a k e place s e q u e n t i a l l y and cont inuously .

('714 p a t e n t , TdX 2a, c o l . 8, 11. 1-6).

_ - L

This a p p l i c a t i o n o f s h i r r i n g f o r c e

t o oppos i te s i d e s o f t h e cas ing over r e l a t i v e l y s h o r t d i e t a n c e s compared t o

226

t h e diameter o f t h e c a s i n g produces a s h i r r i n g p a t t e r n o f major and minor

p l e a t s i n a g e n e r a l l y concave conf igurat ion which are s u b s t a n t i a l l y r e g u l a r l y

formed from end t o end. (TCX 2 a , c o l . 8 , 11. 20-25). To i n t e r l o c k t h e

s u c c e s s i v e p l e a t s o r f o l d s so t h a t t h e s h i r r e d cas ing i s s u b s t a n t l a l l y

r i g i d , t h e s h i r r e d c a s i n g i s subsequently compressed i n a t u r r e t c o n s i s t i n g

o f f o u r mandrels and a compressor-doffer u n i t , i n accordance wi th t h e

Korsgaard '654 patent . (TCX Za, c o l . 1 , 11. 23-53; c o l . 8, 11. 8-19).

The Matecki p a t e n t s d i s c l o s e d a s l i g h t m o d i f i c a t i o n of t h e s h i r r i n g

process set f o r t h i n t h e B l i z z a r d patents .

i n s t e a d of b e l t s mounted with a series o f s h i r r i n g t e e t h with t h r e e d i s t i n c t

Matecki useB s h i r r i n g wheels

con3igurat ions l o c a t e d In repeat ing sequence around t h e p e r i p h e r i e s of t h e

r e s p e c t i v e s h i r r i n g wheels.

an e c c e n t r i c a l l y g y r a t i n g passage o f smaller c r o s s - s e c t i o n a l area than t h e

I

The c o n t a c t s u r f a c e o f t h e t e e t h , which form

i n f l a t e d c a s i n g , are saddle-shaped. When t h e t e e t h on t h e synchronously

r o t a t i n g wheels mate t o g e t h e r a t s a i d passage they c i r c u m f e r e n t i a l l y g r i p

and indent s u c c e s s i v e d i s c r e t e s e c t i o n s o f t h e c a s i n g .

68 - c o l . 3 , 1. 11; TCX 1 , c o l . 2 , 11. 10-21). The Matecki s h i r r i n g

(TCX 2d, c o l . 2, 1.

process r e s u l t e d i n a s h i r r e d c a s i n g p l e a t e d " i n t o a uniform h e l i c a l l y

p l e a t e d s h i r r e d t u b e , " wi th t h e major pleat , i .e., t h e t r a n s v e r s e diagonal

r i d g e (83 i n Fig. 12, TCX 2d) " i n d i c a t i v e o f t h e s u b s t a n t i a l l y h e l i c a l

s h i r r e d pattern." (TCX 2d, c o l . 3 , 11. 11-13; c o l . 7 , 1. 65-70).

Ae recognized i n t h e s u i t p a t e n t , t h e B l i z z a r d and Matecki e h i r r i n g

processes have produced cas1ng'"'pleated i n a form approximating a s p i r a l

pleat extending cont inuously around t h e c a s i n g , " which have commercial use.

But t h e casings s h i r r e d by t h e s e processes have shown i r r e g u l a r i t i e s i n t h e

formation o f t h e i r c a s i n g p l e a t s . These i r r e g u l a r i t i e s are a t t r i b u t a b l e t o

227

a d i s c o n t i n u i t y i n t h e a p p l i c a t i o n o f s h i r r i n g f o r c e t o the casing. The

f o r c e was "intennittent and spaced around t h e periphery o f the c a s i n g ... a t spaced i n t e r v a l s . " To c o r r e c t t h e s e d isadvantages , t h e Arnold invent ion

s e e k s "to develop a s h i r r i n g method and apparatus i n which a s h i r r i n g f o r c e

can be appl ied cont inuous ly around t h e periphery o f t h e casing so t h a t t h e

c a s i n g would be formed i n t o a t r u e h e l i c a l pleat with s u b s t a n t i a l l y no

i n t e r v e n i n g f o l d s o c c u r r i n g at pleats between t h e a p p l i c a t i o n o f s u c c e s s i v e

s h i r r i n g f o r c e s . " (TCX 1, c o l . 2, 11. 22-43). More i m p o r t a n t l y , s h i r r e d

sausage c a s i n g s produced w i t h t h e Arnold p r o c e s s comprise "a more campact

s t r a i g h t s t r a n d having a more s a t i s f a c t o r y d i s t r i b u t i o n o f t h e s h i r r e d

pleats ...." (TCX 1, c o l 4, 11. 16-21). A more compact s t r a i g h t s t r a n d o r

s t i c k o f s h i r r e d c a s i n g can be more e f f i c i e n t l y handled by t h e automatic

feeding and chuck mechanism o f t h e Frank-A-Matic meat-s t u f f i n g equipment . I .

,

(Arnold, TCX 3 3 , pp. 7-9; S t o r y , TCX 34, p. 14).

The Arnold i n v e n t i o n f e a t u r e s t h e a p p l i c a t i o n o f s h i r r i n g f o r c e s by

means o f a p l u r a l i t y o f s h i r r i n g wheels p o s i t i o n e d around t h e c a s i n g being

s h i r r e d which have a p l u r a l i t y o f l u g s p o s i t i o n e d a t an a n g l e such t h a t

r o t a t i o n o f t h e s h i r r i n g wheels w i l l effect t h e a p p l i c a t i o n of s h i r r i n g

f o r c e s t o t h e c a s i n g a long a h e l i c a l l i n e . (TCX 1, c o l . 1, 11. 65-72]. I n

summarizing t h e i n v e n t i o n , t h e s u i t patent states:

The a n g l e o f t h e s h i r r i n g l u g s or o t h e r s h i r r i n g force-applying means i s such that as s a i d l u g s o r means are moved s u c c e s s i v e l y i n t o engagement v i t h t h e casing t h e y engage t h e c a s i n g a long a s u b s t a n t i a l l y c o n t i n t 6 u s h e l i c a l l i n e and t h u s form s u b s t a n t i a l l y continuous h e l i c a l pleats In t h e c a s i n g . pleats results i n s h i r r e d s t r a n d s which are s t r a i g h t e r and about 5-10% s h o r t e r than t h o s e p r e v i o u s l y produced .

The formation o f continuous h e l i c a l

(TCX 1, C O ~ . 3, 11. 19-27). 2 28

The continuous h e l i c a l pleats and compactness i n the shirred c a s i n g s

produced by t h e Arnold p r o c e s s are ev ident i n enlarged photographs of c r o s s

s e c t i o n s of s t r a n d s d e p i c t i n g t h e pleat p a t t e r n , e s p e c i a l l y when compared

with similar c r o s s - s e c t i o n a l photographs o f a strand produced by the

Matecki process.

continuous (major o r long) h e l i c a l pleats and a b e t t e r d i s t r i b u t i o n of t h e

secondary (minor o r s h o r t ) pleats wi th a r e s u l t i n g higher degree o f compact-

n e s s than t h e Hateck i s t r a n d photograph (TCX 3) . thus demonstrating t h e

effect o f t h e Arnold invent ion .

s t r a n d , f o r example, t h e secondary p l e a t s are predominantely a t t h e b a s e i n

the area o f t h e mandrel, and t h e major p l e a t s tend t o o v e r l a y t h e minor

The Arnold s t r a n d photograph (TCX 4) c l e a r l y shows more

(Finding o f F a c t 49). I n t h e Matecki

pleats at t h e o u t e r l e v e l o f t h e cas ing . (Finding of F a c t 51). This

bunching o f t h e mtnor pleats toward t h e base makes f o r less o v e r a l l

compactness o f t h e Matecki s t r a n d i n comparison wi th t h e Arnold s t r a n d , in

which t h e r e appears t o be more major s t r a n d s , wi th t h e minor s t r a n d s more

evenly d i s t r i b u t e d between them. (F indings o f F a c t 53-54). T h i s non-uniform

o r i r r e g u l a r d e n s i t y i n Matecki r e s u l t s from t h e mode of a p p l i c a t i o n o f

s h i r r i n g f o r c e t o t h e c a s i n g i n t h a t process . The t r a n s v e r s e inden-

t a t i o n s fonned by t h e s h i r r i n g wheel t e e t h at s u c c e s s i v e 120 degree i n t e r v a l s

around t h e per iphery o f t h e c a s i n g develop low d e n s i t y exterior areas o f

pleats which do n o t o v e r l a p and h i g h e r d e n s i t y i n t e r i o r areas of p l e a t s

which do overlap. (TCX 2d, F ig . 10; c o l . 6 , 1. 64; Arnold, TCX 33 pp. 5-6;

S t o r y , TCX 34 pp. 5-6; TCX 3).

229

Arnold Patent Claims

As set f o r t h i n r e p r e s e n t a t i v e claim 1 o f t h e s u i t patent$' t h e

Arnold Invent ion comprises a process f o r s h i r r i n g sausage c a s i n g s , inc luding

applying a p l u r a l i t y o f s h i r r i n g f o r c e s s e q u e n t i a l l y and cont inuously a t

spaced p o i n t s around t h e periphery o f the c a s i n g , and progress ive ly

l o n g i t u d i n a l l y o f t h e c a s i n g , a long a s u b s t a n t i a l l y continuous h e l i c a l

l i n e . (TCX 1, c o l . 10, 11. 13-17). The apparatus used t o practice t h e

patented process i n c l u d e s saddle-shaped s h i r r i n g lugs s i t u a t e d d iagonal ly on

t h e periphery o f t h r e e cooperat ing s h i r r i n g wheels o r endless b e l t s , each

l u g having a beve led , r i d g e - l i k e t o o t h at each end. (TCX 1, Fig. 1 , 2).

The s h i r r i n g l u g s are disposed at an a n g l e so t h a t as t h e b e l t moves o r t h e

6 wheels r o t a t e , t h e t e e t h o f s u c c e s s i v e lugs are brought i n t o engagement

with t h e i n f l a t e d c a s i n g , making h e l i c a l i n d e n t a t i o n s i n and around t h e

cas ing . (TCX 1, c o l . 8 , 1. 58). These s u c c e s s i v e indenta t ions i n t h e

c a s i n g o p e r a t e t o maintain a s u b s t a n t i a l l y continuous indent o r trough

having t h e g e n e r a l form o f a h e l i x . (TCX 1 , c o l . 8, 11. 54-59).

As seen i n F i g u r e 8 o f t h e s u i t p a t e n t , t h e s h i r r i n g wheel l u g s o r

t e e t h (152) are s u c c e s s i v e l y brought i n t o engagement wi th t h e cas ing . The

t e e t h are set a t an a n g l e t o t h e axis of t h e r e s p e c t i v e wheels , and a t o o t h

o f t h e uppermost wheel i n t h e drawing d e f i n e s a por t ion "aw which i s shown

i n e s s e n t i a l l y mating r e l a t i o n s h i p wi th a corresponding p o r t i o n *a" of a

- 4/ Dependant claim 2 emphasizes t h a t t h e s h i r r i n g f o r c e s are appl ied "in d i s c r e t e segments o f a h e l i c a l l i n e , " l e e . , by and through t h e shirring l u g s s e q u e n t i a l l y a t spaced f r o n t s on t h e per iphery of t h e casing, p r o g r e s s i v e l y and l o n g i t u d i n a l l y o f t h e cas ing . Dependent claim 3 refers t o t h e fac&that t h e s h i r r i n g f o r c e appl ied by each l u g as it engages t h e cas ing is appl ied a t an a n g l e t o t h e d i r e c t i o n of l o n g i t u d i n a l movement o f t h e cas ing. i n f l a t i o n o f t h e c a s i n g p r i o r t o a p p l i c a t i o n of any s h i r r i n g f o r c e s .

Dependent claim 5 refers t o t h e

230

t o o t h on t h e lower r i g h t - h a n d wheel. The l a t t e r t o o t h a l s o d e f i n e s por t ion

"b" which, upon continued r o t a t i o n o f the wheels , w i l l mate with a por t ion

"b" on a t o o t h of the lower lef t -hand wheel. That t o o t h , i n t u r n , d e f i n e s a

p o r t i o n "e" which w i l l eventua l ly come i n t o mating r e l a t i o n s h i p with a

p o r t i o n "c" of t h e next t o o t h on t h e uppermost wheel.

I n t h i s way, t h e s h i r r i n g wheels i n Arnold's i n v e n t i o n , as depic ted and

taught i n t h e s u i t patent and as commercial ly employed by complainants ,

engage t h e c a s i n g at s u c c e s s i v e spaced p o i n t s *a* , * b , * and "c." This ach ieves

(Finding o f F a c t 88).

h e l i c a l indent ing of t h e casing in t h e formation o f the s h i r r e d s t i c k s .

Complainants practice t h e Arnold process as patented s i n c e a l l skinless

sausage c a s i n g s produced and s o l d by Teepak and Union Carbide i n t h e United

S t a t e s are manufactured in accordance wi th t h e claims o f t h e s u i t patent .

(TCX 302, p. 14; SX 4). However, s i n c e t h e claims o f t h e s u i t patent are I

process o r method claims, they are not l i m i t e d t o any p a r t i c u l a r form o f

apparatus. (TCX 1 , c o l . 3 , 1. 27-32). I n re P r a t e r h Wei, 162 U.S.P.Q. 541,

549 (C.C.P.A. 1969) . Viscofan 's S h i r r i n g Process

5/ Viscofan uses b a s i c a l l y two processes f o r s h i r r i n g sausage casings.-

The f irst o r stat ic head p r o c e s s , in use when t h i s i n v e s t i g a t i o n was

i n s t i t u t e d , involves a s h i r r i n g apparatus wherein t h r e e s h i r r i n g wheels

are mounted f o r r o t a t i o n on a s t a t i o n a r y o r static support in e s s e n t i a l l y

t h e manner shown i n F i g u r e 8 of t h e s u i t patent . The s h i r r i n g wheels are

l o c a t e d equiangular ly (at 120 degree i n t e r v a l s ) around a mandrel , and t h e

- 5/ Late i n 1983, Viscofan developed a t h i r d s h i r r i n g process which operates in e s s e n t i a l l y t h e same manner as t h e process i n u s e when t h e i n v e s t i g a t i o n began. mounted equiangular ly on a s t a t i o n a r y o r stat ic head i n t h e manner shown in F i g u r e 8 o f t h e suit patent and are in terchangeable wlth t h e wheels of the f irst process .

e s h i r r i n g wheels in t h i s t h i r d process are

(Findings o f F a c t 57-62).

23 1

tubular c a s i n g i s f e d a long t h i s mandrel t o a s h i r r i n g l o c a t i o n f o r engage-

ment by t h e l u g s around t h e periphery o f t h e r e s p e c t i v e wheels.

tate t h i s engagement, t h e c a s i n g i s i n f l a t e d . (Finding o f F a c t 57). The

To fac i l i -

lugs o f each wheel are a t r i g h t angles t o t h e c e n t e r l i n e of t h e c a s i n g

and each lug has a r a i s e d o r e l e v a t e d t o o t h a t one o r t h e o t h e r end o f t h e

lug.

with an indented space between each set o f two tee th . These wheels mate

The lugs are in groups of two, which are pos i t ioned s i d e by s i d e ,

such t h a t one e l e v a t e d p o s i t i o n o f a composite t o o t h on one wheel a l i g n s

with t h e e l e v a t e d p o s i t i o n on t h e o t h e r s i d e of a composite t o o t h on t h e

next wheel. As a r e s u l t , a 120 degree f l a t s u r f a c e c o n s i s t i n g o f t h e

beveled r i d g e s o f t h e mating t e e t h at r i g h t a n g l e s t o t h e c a s i n g , s e q u e n t i a l l y

an&'continuously c o n t a c t s t h e c a s i n g at any p a r t i c u l a r time.

F a c t 87, 89, 90).

(Findings o f ,

The second o r r o t a t i n g head p r o c e s s , now a l l e g e d l y used f o r t h e

production o f sausage c a s i n g s f o r t h e United S t a t e s market , u t i l i z e s f o u r

r o t a t i n g s h i r r i n g wheels o r r o l l e r s mounted around t h e mandrel at r i g h t

angles t o t h e axis o f t h e mandrel. S lmultaneously , t h e head on which t h e

wheels are mounted r o t a t e s around t h e axis o f t h e mandrel. There are

saddle shaped (concave, a r c u a t e grooved) l u g s o r vanes at spaced i n t e r v a l s

on t h e per iphery o f each wheel, wi th e l e v a t e d p o r t i o n s o r t e e t h at both

ends o f each lug. S i n c e each l u g engages over 90 degrees o f t h e circum-

ference o f t h e c a s i n g as i t passes along t h e mandrel , t h e wheels are

staggered so t h a t t h e i r r e s p e c t i v e t e e t h pass s e q u e n t i a l l y one after t h e

o ther . (F indings of Fact 75-8g. The o p e r a t i o n o f t h i s process 1s essen-

t i a l l y t h e same as t h a t descr ibed i n t h e K b l l r o s s '295 patent.

o f F a c t 83, 8 4 ) .

(Findings

232

Infringement Analysis

I n considering whether a product o r process d i r e c t l y o r l i t e r a l l y

i n f r i n g e s a p a t e n t , r e s o r t must be had i n t h e first i n s t a n c e to the words

of t h e claims. If t h e a l l e g e d l y i n f r i n g i n g d e v i c e o r process fal ls squarely

within t h e l i t e ra l language of t h e claims, a case o f d i r e c t infringement i s

e s t a b l i s h e d , Leesona Corp. V. Varta B a t t e r i e s , Inc . , 213 U.S.P.Q. 222

(D.C.N.Y. 1981); Graver Tank h Mfg. Co. V. Linde Air Products Co., 339 U.S.

605, 607 (1950). Mrect infringement of a method o r process patent r e q u i r e s ,

at least , t h a t t h e i n f r i n g e r s have performed t h e p r i n c i p a l steps o f the

process claims. Laminex, Inc . V. F r i t z , 183 U.S.P.Q. 265 (I). Ill. 1974). . .

I n s o n s i d e r i n g whether t h e r e i s infringement o f a p a t e n t , t h e patent claims

are t o be read i n l i g h t o f t h e invent ion d i s c l o s e d , and are not t o be given

a c o n s t r u c t i o n broader than t h e a c t u a l teachings o f t h e patent as shown by

,

t h e s p e c i f i c a t i o n and drawings. Vischer Products Co. V. National Pressure

Cooker Co., 83 U.S.P.Q. 413 ( 7 t h C i r . 1949); United S t a t e s V. Adams, 383

U.S. 39, 49 (1965).

A determination o f whether Viscofan's s h i r r i n g processes i n f r i n g e

claim 1 o f t h e s u i t patent r e q u i r e s c l o s e a n a l y s i s o f how t h e processes

a c t u a l l y work o r are employed i n t h e operat ion of Viscofan's static head

and r o t a t i n g head s h i r r i n g machines, and p a r t i c u l a r l y how t h e s h i r r i n g

f o r c e s are applied i n those machines. I n terms o f c l a i m 1 , t h e e v i d e n t i a r y

record c l e a r l y e s t a b l i s h e s t h a t t h e relevant processes employed by Viscofan

f o r s h i r r i n g s y n t h e t i c sausage--?5isings include a p p l i c a t i o n of a p l u r a l i t y

of s h i r r i n g f o r c e s (e.g., s h i r r i n g wheels and lugs with t e e t h ) s e q u e n t i a l l y

and continuously a t spaced p o i n t s around t h e periphery of t h e casing, and

p r o g r e s s i v e l y and l o n g i t u d i n a l l y o f t h e cas ing. (Findings o f F a c t 86, 100).

233

However, Viscofan contends that t h e s h i r r i n g f o r c e s i n i t s processes

a r e not appl ied in e x a c t l y t h e same way nor "along a s u b s t a n t i a l l y continuous

h e l i c a l l i n e " wi th in t h e meaning and i n t e n t of t h e claim read i n t h e

context o f t h e patent s p e c i f i c a t i o n . Viscofan argues t h a t t h e s u i t patent

and t h e test imony o f expert wi tnesses e s t a b l i s h t h e c l o s e , perhaps c a u s a l

r e l a t i o n s h i p between applying s h i r r i n g f o r c e s i n a s u b s t a n t i a l l y h e l i c a l

l i n e and " e s s e n t i a l l y continuous h e l i c a l pleats." (TCX 1 , c o l . 18-23;

S t o r y , TSCX 34, pp. 6-8; Arnold, TCX 33, pp. 15-16). It is Viscofan ' s

p o s i t i o n t h a t t h e s h i r r i n g f o r c e s i n i t s processes are not appl ied along a

" s u b s t a n t i a l l y continuous h e l i c a l l i n e " as required by c l a i m 1 because t h e

casings s h i r r e d i n accordance with Viscofan 's processes d i s p l a y (1) discon-

t inuous and i r r e g u l a r major pleat p a t t e r n s with (2 ) many more minor pleats

in tervening between t h e major pleats , which (3) are not i n 2 p a t t e r n s .

Viscofan f u r t h e r argues t h a t t h e wear p a t t e r n s on t h e s h i r r i n g t e e t h o f

I

Viscofan ' s stat ic head wheels show t h a t f o r c e s appl ied around t h e per iphery

o f casing are i n t e r m i t t e n t , with breaks o r gaps due t o t h e stepped r i g h t

angle conf igurat ion o f t h e t e e t h on t h e l u g s , which i s d i f f e r e n t from t h e

s t r a i g h t d iagonal t e e t h on t h e Teepak Arnold lugs . (F indings o f F a c t

93-95) . As previously d i s c u s s e d under p a t e n t v a l i d i t y , supra , Viscofan 's p l e a t

p a t t e r n argument i s n o t sustained by a comparison o f t h e photographs o f

c r o s s - s e c t i o n s of t h e p l e a t i n g o f sausage c a s i n g s s h i r r e d by t h e V i s c o f a n ,

Arnold and Mateck i /B l izzard processes . Although t h e two Viscofan c a s i n g

c r o s s - s e c t i o n photographs (TCX 5, 6) do show more minor pleats and s h o r t I

fo lds than t h e Teepak/Arnold c a s i n g and Teepak/Screw S h i r r e d c r o s s - s e c t i o n

photographs (TCX 4, 7), t h e former a l s o shows a more even d i s t r i b u t i o n of

minor pleats which are not bunched a t t h e base near t h e mandrel , more

234

compactness and more major pleats than t h e Matecki c a s i n g c r o s s - s e c t i o n

photograph. (TCX 3). Indeed, t h e pleat p a t t e r n shown i n Viscofan

photograph TCX 6 and Teepak Arnold photograph TCX 4 are p r a c t i c a l l y i n d i s -

t inguishable . The a l l e g e d “2 p a t t e r n s ” i n t h e minor pleat formations are

not r e a d i l y d i s c e r n i b l e i n e i t h e r t h e Viscofan o r Teepak c r o s s - s e c t i o n a l

photographs, and even if they were c l e a r l y v i s i b l e , they would c a r r y l i t t l e

o r no probat ive weight as n e i t h e r t h e s u i t patent claims o r s p e c i f i c a t i o n s

make any r e f e r e n c e t o s u c h - p a t t e r n s as i n d i c a t i v e o f a s u b s t a n t i a l l y

continuous h e l i c a l l i n e .

. _ _ _

S i m i l a r l y , V i s c o f a n ’ s t e e t h wear p a t t e r n argument is n o t w e l l founded

because i t i s based on an erroneous percept ion o r d i s t o r t i o n of t h e a p p l i c a t i o n

, of s h i r r i n g f o r c e s e f f e c t e d by t h e d i f f e r e n t c o n f i g u r a t i o n o f t h e l u g

t e e t h on i t s s h i r r i n g wheels.

i n Viscofan (VRX 3) appears p h y s i c a l l y q u i t e d i f f e r e n t from t h e diagonal

l u g c o n f i g u r a t i o n i n Teepak Arnold (TCPX 69). t h e s h i r r i n g f o r c e they

effect i s very similar s i n c e i t is appl ied s e q u e n t i a l l y and cont inuous ly a t

p r a c t i c a l l y t h e same spaced points .

because i n both cases t h e two bevel-ridged t e e t h on each l u g are s t a g g e r e d .

f o r mating with another tooth/ lug on a cooperat ing wheel , i .e., t h e t e e t h

are d i a g o n a l l y o p p o s i t e each o t h e r on t h e Viscofan l u g , and i n Teepak

Arnold t h e e n t i r e l u g is diagonal t o t h e axis o f t h e wheel , wi th a beveled-

r i d g e t o o t h a t each end o f t h e l u g and a grooved.trough i n between.

f o r c e appl ied t o t h e c a s i n g by t h e lugs i n both processes would p r i m a r i l y

b e at t h e l e a d i n g edges o f t h e d i a g o n a l l y p o s i t i o n e d t e e t h , wi th some wear

t o be expected i n between them. ( S t o r y , Tr. 1424-49; Cory, Tr. 137-40).

Although t h e step-angled l u g c o n f i g u r a t i o n

(Findings o f F a c t 9 0 - 9 4 ) . This i s so

The

--

23 5

More important ly , t h e e l e v a t e d t e e t h on the l u g s o f both the Viscofan

s ta t i c head and Teepak Arnold processes make s u c c e s s i v e i n d e n t a t i o n s

around t h e periphery o f t h e c a s i n g at a n g u l a r l y spaced p o i n t s .

s h i r r i n g wheels o f both p r o c e s s e s are timed so that t h e t e e t h o f one lug

mate w i t h t e e t h o f an a d j a c e n t l u g , the r e s u l t i n g a p p l i c a t i o n o f f o r c e

extends along a s u b s t a n t i a l l y continuous h e l i c a l l i n e . ( S t o r y , Tr. 1413-17,

1421-32; TCPX 7 6 ; TCX 1).

S i n c e t h e

Viscofan ' s r o t a t i n g head machine process a l s o a p p l i e s s u c c e s s i v e

angular i n d e n t a t i o n s t o t h e c a s i n g along a s u b s t a n t i a l l y h e l i c a l l i n e .

Each o f t h e f o u r s h i r r i n g r o l l s supports a p l u r a l i t y o f vanes or l u g s which

are designed f o r d i r e c t engagement wi th t h e i n f l a t e d c a s i n g being d e l i v e r e d

t o t h e s h i r r i n g head around a mandrel. (F indings o f F a c t 7 5 , 76). T h i s

I *

I

mandrel corresponds i n f u n c t i o n wi th t h e mandrel i n Arnold (TCX 1 , F ig . 8),

6/ and t h e vanes o f Kol l ross - perform i n the manner o f t h e l u g s i n Arnold.

(Findings o f F a c t 8 3 , 84). The r o t a t i n g head apparatus provideg a s h i r r i n g

a c t i o n involv ing a p p l i c a t i o n o f t h e vanes, one after a n o t h e r , t o t h e

cas ing . S i n c e e a c h t o o t h o r vane i n a r o t a t i n g head machine i s moving

along t h e axis of t h e c a s i n g whi le simultaneously r o t a t i n g around t h a t

axis, e a c h vane n e c e s s a r i l y fo l lows a h e l i c a l path o f movement.

Viscofan 'e p r i n c i p a l non-infringement argument i s t h a t i ts static head

machine, a t least , practices t h e B l i zzard/Mateckiz' s h i r r i n g p r o c e s s

- 6/ The K o l l r o s s '295 p a t e n t (TCX 2g) and t h e p h y s i c a l model of a K o l l r o s s r o t a t i n g head machine (TCPX-70) reasonably i l l u s t r a t e and d e s c r i b e t h e o p e r a t i o n o f t h e Viscofan r o t a t i n g head machine. Indeed, t h e K o l l r o s s patent has t h e purpose o f forming a s h i r r e d stick wlth a " h e l i c o i d a l l y running main fo ld . " (Findings o f F a c t 8 3 , 84). The p r i o r art Matecki p a t e n t s (TCX 2d and e) comprise an improvement on t h e B l i z z a r d system.

- 7 / (Clement, Tr. 1448; Arnold, TCX 3 5 , pp, 5-61.

2 36

which, as previously d i s c u s s e d , i s d i s t i n c t l y d i f f e r e n t from t h e Teepak

Arnold s h i r r i n g process i n t h a t a r e l a t i v e l y i n t e r m i t t e n t r a t h e r than

continuous s h i r r i n g f o r c e i s applied. Although Viscofan could p r a c t i c e t h e

B l i z z a r d process by using t h e K o l l r o s s r o t a t i n g head machine i n stat ic

condi t ion ( i .e . , without r o t a t i n g i t ) , i t has chosen not t o do so , a t least

not f o r importat ion i n t o t h e United S t a t e s . (Dudtlk, Tr. 1101-02).

There i s s u b s t a n t i a l evidence o f record t h a t Vlscofan i s p r a c t i c i n g

t h e Teepak Arnold process r a t h e r than t h a t o f Blizzard/Matecki . As previous ly

noted, t h e Teepak casing produced under t h e Arnold process and t h e Vlscofan

casing produced under i t s static head and r o t a t i n g head processes a l l have

s u b s t a n t i a l l y uniform d e n s i t y , 1.e. compact, evenly d i s t r i b u t e d p l e a t s , whereas

t h e Bl lzzard/Matecki c a s i n g s have i r r e g u l a r , non-uniform d e n s i t y (TCX 3)

which i s commercial ly less d e s i r a b l e . c

The m a l d l s t r i b u t e d , n o n v n l f o r m

pleat p a t t e r n i n Bl izzard/Matecki s h i r r e d s t rands i s caused by t h e s u c c e s s i v e

a p p l i c a t i o n o f s h i r r i n g f o r c e s t r a n s v e r s e l y by one o r a p a i r o f l u g s o v e r a

wide a n g l e , i n t e r r u p t e d i n t e r m i t t e n t l y a t 120 degree i n t e r v a l s , when t h e

next lug o r lugs reapply f o r c e over a wide angle. (Arnold, TCX 33, p. 9).

Viscofan 's r e l i a n c e on ink p a t t e r n s der ived from c o l o r i n g some o f t h e

major p l e a t s o f a s e c t i o n o f s h i r r e d c a s i n g , which becomes a v i s i b l e

continuous unbroken h e l i c a l l i n e when t h e c a s i n g s e c t i o n i s d e s h i r r e d

i s n o t a c o n c l u s i v e test o f conformity wi th t h e provis ions of clalm 1 o f

t h e s u i t patent . Such i n k p a t t e r n s are nowhere r e f e r r e d t o i n t h e s u i t

patent claims o r s p e c i f i c a t i o n as i n d i c a t i o n s t h a t t h e Arnold p r o c e s s i s

being u t i l i z e d . evidence as i n k

o f i n k p a t t e r n s

(Arnold, Tr. 253; TCX 1). Moreover, even assuming such - - p a t t e r n s o f h e l i c a l l i n e s could be c o n c l u s i v e , a comparison

on s h i r r e d casings produced by Teepak and Viecofan i n d i c a t e s

237

that although t h e r e are somewhat more pronounced d f s c o n t i n u i t i e s I n t h e

i n k p a t t e r n produced by a d e s h i r r e d Vfscofan c a s i n g , t h a t p a t t e r n i s

s u b s t a n t i a l l y h e l i c a l , and bears much c l o s e r resemblance t o t h e p a t t e r n of

a c a s i n g s h i r r e d by t h e Teepak Arnold p r o c e s s than by t h e Bl izzard/Matecki

process . This s u b s t a n t i a l s i m i l a r i t y between Teepak Arnold and Viscofan

sugges ts that t h e same b a s i c process i s be ing used.

S t o r y , TCX 34, p. 6-7; VPX 43; TCPX 57, 59).

(Arnold, Tr. 222, 228;

The d i f f e r e n c e s between Viscofan and Teepak Arnold processed c a s i n g s ,

respectively, on t h e one hand, and Bl izzard/Matecki processed c a s i n g s on

t h e o t h e r hand, are also r e f l e c t e d i n t h e p i t c h o f t h e helixz' formed i n

t h e v a r i o u s c a s i n g s o f t h e s e processes . The p i t c h o f a h e l i x formed

by t h e Bl izzard/Matecki processes i s g r e a t e r than t h e p i t c h o f a h e l i x

fo,rmed by t h e Teepak Arnold and V i s c o f a n p r o c e s s e s , r e s p e c t i v e l y .

one experiment , it was found t h a t t h e p i t c h o f t h e h e l i x i n Matecki's TCPX

55 i s about 1-5/8 i n c h e s , whi le t h e h e l i x p i t c h i n Teepak's TCPX 56 i s

about 718 inch .

process also disp layed reasonably v i s i b l e d iagonal p a r a l l e l l i n e s a t a

h e l i x p i t c h of about one i n c h , c l o s e t o t h e p i t c h o f t h e h e l i x i n t h e

Teepak casing sample. (Arnold, TCX 33, pp. 9-10; TCPX 55-58; VPX 43).

Thus, i n

The samples o f d e s h i r r e d c a s i n g produced by t h e V i s c o f a n

The foregoing examination o f t h e s h i r r e d c a s i n g s produced by t h e

r e l e v a n t s h i r r i n g p r o c e s s e s tends t o r e i n f o r c e complainant's demonstrated

c o n t e n t i o n t h a t t h e V i s c o f a n p r o c e s s , l ike Teepak's and u n l i k e B l i z z a r d ' s ,

a c h i e v e s t h e o b j e c t s o f t h e s u i t p a t e n t by d i s p l a y i n g a s u b s t a n t i a l l y

cont inyous h e l i c a l l i n e i n i t s r e l a t i v e l y compact s h i r r e d p l e a t pat tern . . .

- 8/ The p i t c h o f t h e h e l i x rerers t o t h e d i s t a n c e between t h e d iagonal p n r a l l e l pa inted o r inked l i n e s marking t h e s u b s t a n t i a l l y cont inuous major p l e a t s d i s c e r n i b l e i n t h e casing s e c t i o n under study.

238

F i n a l l y , a s previous ly d i s c u s s e d , t h e prosecut ion h f s t o r y o f the s u i t

patent i s c o n s i s t e n t with and c e r t a i n l y raises no l e g a l es toppel t o my

i n t e r p r e t a t i o n o f claim 1 which, supported by a preponderance o f the

evidence o f r e c o r d , l e a d s me t o conclude t h a t all the provis ions o f claim 1

read on Viscofan ' s s h i r r i n g processes . Accordingly, I f i n d t h a t Viscofan's

c i t e d p r o c e s s e s f o r t h e manufacture of skinless sausage c a s i n g s l i t e r a l l y

i n f r i n g e claim 1, and hence c la ims 2, 3 and 5 o f complainant Teepak's '484

patent . This conc lus ion i s properly p r o t e c t i v e o f and c o n s i s t e n t with t h e

i n v e n t i v e e lements of t h e s u i t patent process claims which, as s p e c i f i e d i n

t h e p a t e n t , are intended t o cover the operat ion of any d e v i c e s meeting t h e

c la ims ' criteria.

Doctr ine o f E a u i v a l e n t s - *

Although Teepak rel ies p r i n c i p a l l y on i t s content ion t h a t Viscofan 'e

p r o c e s s e s l i t e r a l l y i n f r i n g e t h e p e r t i n e n t claims o f t h e s u l t p a t e n t , it is

complainant's p o s i t i o n t h a t any process equiva lent t o t h e processes covered by

t h e s u i t patent i s i n f r i n g i n g . Infringement o c c u r s , according t o complainant,

if such process a c h i e v e s t h e same o b j e c t s o f t h e Arnold invent ion through

e s s e n t i a l l y t h e same s u b s t a n t i a l l y continuous h e l i c a l a p p l i c a t i o n of s h i r r i n g

f o r c e s t o t h e sausage c a s i n g t o be sh i r red .

Arguments, Tr. 2196-97). The d o c t r i n e o f equiva lents a l lows a patent owner

t o hold as an infr ingement a product o r process t h a t does not correspond t o

t h e l i teral terms o f t h e claims of t h e patent but performs s u b s t a n t i a l l y t h e

same f u n c t i o n i n s u b s t a n t l a l l y t h e same way t o o b t a i n t h e same r e s u l t .

Chisum, P a t e n t s , 5 18.04 (1982); Graver Tank 6 Mfg. Co. V. Linde Air Products

2' Co 338 U.S. 605; Duplan Corp. v. Deering M f l l i k e n , I n c . , 188 U.S.P.Q. 373

(D.S.C. 1973).

(Complainant Teepak's Closing

4

_.

239

Viewed as an a i d t o t h e c o n s t r u c t i o n and i n t e r p r e t a t i o n of claims,

t h e d o c t r i n e of e q u i v a l e n t s i s f u l l y c o n s i s t e n t with the g e n e r a l p r i n c i p l e

t h a t t h e claim wasures t h e scope o f the patent monopoly, and i s t o be

reasonably construed i n l i g h t o f t h e p a t e n t s p e c i f i c a t i o n and prosecut ion

h i s t o r y i n t h e PTO. 4 Chisum, supra.

S i n c e t h e s u i t p a t e n t , by i t s own terms, r e p r e s e n t s a l i m i t e d , but new

and u s e f u l improvement i n a method f o r s h i r r i n g sausage c a s i n g s , i t i s

- probably e n t i t l e d t o a r e l a t i v e l y narrow range o f e q u i v a l e n t s under t h e

d o c t r i n e of e q u i v a l e n t s . J u l i e n V. Comez h Andre T r a c t o r R e p a i r s , I n c . ,

196 U.S.P.Q. 224 (M.D. La. 1977) a f f ' d 607 F.2d 1004 ( 9 t h C i r . 1979).

Based on t h e evidence o f record and t h e comparative a n a l y s i s o f t h e V i s c o f a u

and Teepak shirring p r o c e s s e s , i n c l u d i n g t h e i r r e s p e c t i v e means o r methodology,

f u n c t i o n s , o b j e c t s and r e s u l t s , i f t h e q u e s t i o n were presented o f whether

o r not t h e latter process was i n f r i n g e d by t h e former p r o c e s s e s under t h e

d o c t r i n e o f e q u i v a l e n t s , I would f i n d i n t h e a f f i r m a t i v e . The V i s c o f a n

and Teepak p r o c e s s e s perform s u b s t a n t i a l l y t h e same f u n c t i o n i n s u b s t a n t i a l l y

t h e same way t o o b t a i n s u b s t a n t i a l l y t h e same r e s u l t s .

d i s c u s s e d , t h e s t r u c t u r a l and p o s i t i o n a l d i f f e r e n c e s i n t h e s h i r r i n g l u g s '

As p r e v i o u s l y

. .

c o n f i g u r a t i o n and i n t h e h e l i c a l pleat p a t t e r n o f t h e c a s i n g s s h i r r e d by

t h e r e s p e c t i v e p r o c e s s e s do not s i g n i f i c a n t l y change t h e n a t u r e , scope or

effect o f t h e s h i r r i n g f o r c e s being appl ied . Nor do t h e s e d i f f e r e n c e s

s u b s t a n t i a l l y vary t h e q u a l i t y o f t h e s h i r r e d c a s i n g product sought and

intended by t h e s u i t patent.

F i n a l l y , V i s c o f a n sugges ts t h a t t h e d o c t r i n e o f e q u i v a l e n t s i s i n o p e r a b l e

here because t h e "equiva lent element" was n o t known t o be i n t e r c h a n g e a b l e

240

by persons s k i l l e d i n t h e art a t t h e time o f the Invent ion.

Court case o f Graver Tank, supra , ( involving a device/composit ion patent ) ,

c i ted by Viscofan i n support of t h i s p r o p o s i t i o n , i t should be noted t h a t

In t h e Supreme

the Court d id emphasize t h e knowledge o f i n t e r c h a n g e a b i l i t y by those

s k i l l e d i n t h e art as an "important factor . " However, it i s n o t clear

whether t h i s was intended t o mean an " e s s e n t i a l " f a c t o r .

0 18.04[3] .

4 Chisum, P a t e n t s ,

Indeed, t h e r e i s a s p l i t i n t h e a u t h o r i t i e s on this q u e s t i o n ,

s i n c e a number o f lower c o u r t d e c i s i o n s have adopted a c o n t r a r y view, l e e . ,

t h a t t h e a l l e g e d e q u i v a l e n t need n o t exist o r b e known as an equiva lent at

t h e time o f i n v e n t i o n o r patent ing.

Edison E l e c t r i c L i g h t Co. v e Boston Incandescent Lamp Co., 62 F. 397 (C.D.

Chisum, supra , c i t i n g , inter a l i a ,

I .

I Mass. 1894).

In Edison , t h e Court recognized t h a t " the fundamental q u e s t i o n i s

whether t h e a l l e g e d i n f r i n g e r makes use o f t h e e s s e n c e o f t h e patented

invent ion ; not whether he has adopted a known equiva lent o r made a pat-

e n t a b l e improvement on t h e invention." Id. a t 399. Even assuming, as - Viscofan a e s e r t s , t h a t t h e r o t a t i n g head and t h e stepped r i g h t a n g l e wheel

lugs u t i l i z e d i n i t s s h i r r i n g process were unknown by t h o s e s k i l l e d i n t h e

art at t h e time o f Arnold's i n v e n t i o n , the e s s e n c e of t h e Arnold p r o c e s s

invent ion i s p r a c t i c e d i n t h e Viscofan process . This i n c l u d e s t h e appl i -

c a t i o n of a p l u r a l i t y o f s h i r r i n g f o r c e s s e q u e n t i a l l y and cont inuously at

an a n g l e t o t h e d i r e c t i o n o f l o n g i t u d i n a l movement and at spaced p o i n t s i n

d i s c r e t e segments around t h e periphery o f t h e c a s i n g , a long a s u b s t a n t i a l l y

continuous h e l i c a l l i n e .

--

It i s well e s t a b l i s h e d t h a t p r o c e s s claims are n o t l i m l t e d by t h e

p a r t i c u l a r apparatus d i s c l o s e d o r u t i l i z e d . 4 Deller's Walker on P a t e n t s ,

241

5 251 (2d Ed. 1965). However, Viscofan argues, I n e f fec t , t h a t since i t s

s h i r r i n g process, inc luding the r o t a t i n g head and stepped r i g h t angle wheel

l u g s , has so changed o r Improved t h e Arnold process as t o perform t h e same

o r similar f u n c t i o n i n a s u b s t a n t i a l l y d i f f e r e n t way, a l b e i t t e c h n i c a l l y

wi th in t h e l i t e r a l words o f claim 1 (Finding of Fact 831, only the r e v e r s e

d o c t r i n e o f equiva lents may be invoked t o restrict the claim and d e f e a t t h e

patentee ' s a c t i o n f o r infringement.

Brake Co., 170 U.S. 537 (1898); Graver Tank & Mfg. Co. V. U n d e Air Product

2' Co 339 U.S. a t 609.

See Westinghouse Co. V . Boyden Power -

Although "more than a l i t e ra l response t o t h e terms o f t h e claims

must be shown t o make o u t a case o f in f r ingement , " Leesona Corp. V. United

, S t a t e s , 192 U.S.P.Q. 672 ( C t . C1. 1976), I would f i n d t h a t Viscofan 's

s h i r r i n g processes use t h e Arnold process invent ion as taught in t h e s u i t

patent and t h a t t h e r e is s u b s t a n t i a l i d e n t i t y in terms o f means, o p e r a t i o n ,

and r e s u l t between t h e Viscofan and Teepak Arnold processes .

V. Langendorf United B a k e r i e s , I n c . , 139 U.S.P.Q. 220 ( 9 t h C i r . 1963).

Even in t h e Westinghouse case ( involv ing a d e v i c e claim) c i t e d by V i s c o f a n ,

t h e c o u r t condit ioned t h e a p p l i c a b i l i t y o f t h e r e v e r s e d o c t r i n e o f equiva-

- See Lockwood

l e n t s upon t h e a l l e g e d i n f r i n g i n g d e v i c e having "so far changed t h e p r i n c i p l e

of t h e d e v i c e t h a t t h e claims o f t h e p a t e n t , l i t e r a l l y const rued, have

.

ceased t o r e p r e s e n t h i s a c t u a l invention." Westinghouse V. Boyden Power

Brake Co., 170 U.S. a t 569. I would not f i n d , on t h i s r e c o r d , t h a t Viscofan ' s

process so changed claim 1 o f t h e s u i t patent t h a t , l i t e r a l l y const rued,

t h a t claim no longer r e p r e s e n t s Arnold's invent ion.

242

Misappropriation o f Trade S e c r e t s

I n Inv. No. 337-TA-169, Union Carbide a l l e g e s t h a t Viscofan has

engaged i n u n f a i r methods of competi t ion and unfair acts by v i r t u e o f

misappropriat ion o f Union Carbide t rade secrets r e l a t i n g t o the manufacture

o f s k i n l e s s sausage cas ings . It i s Union Carbide's content ion t h a t t h e

p r i n c i p a l s o f Viscofan engaged i n a massive conspiracy between 1975 and

1979 t o steal v a l u a b l e p r o p r i e t a r y information i n t h e form of 'equipment ,

drawings, and t e c h n i c a l information from Union Carbide's French s u b s i d i a r y ,

Viscora. A c q u i s i t i o n o f t h i s in format ion , claimed t o b e p r o p r i e t a r y

t o Union Carbide and maintained i n c o n f i d e n c e , i s a l l e g e d t o have enabled

Vfscofan t o e n t e r t h e business and commence commercial product ion o f

s k i n l e s s c a s i n g s . (Union Carbide PB, p. 1). I

I n counter ing Union Carbide's c o n t e n t i o n s , Viscofan claims t h a t i t s

s k i n l e s s c a s i n g operat ions were developed independently, u t i l i z i n g both

p u b l i c l y a v a i l a b l e information and t h e exper ience o f one o f Viscofan 's

founding comprnfles, Papelera Guipuzcoana de Zicunaga (Papelera) . It i s

f u r t h e r Viscofan ' s p o s i t i o n t h a t Union Carbide's a l l e g e d t r a d e secrets do

not possess such p r o p r i e t a r y va lue as t o q u a l i f y f o r p r o t e c t i o n as t r a d e

secrets, and/or t h a t the s e c r e c y of t h i s information has been l o s t by

var ious means. (Viscofan PB, pp. 15-29). In a d d i t i o n , Viscofan a l l e g e s

t h a t t h e supposed t r a d e secrets a l l e g e d l y s t o l e n from Viscora i n France are

not u t i l i z e d by Union Carbide i n t h e United S t a t e s , thus prevent ing a

f i n d i n g o f a domesttc industry .

243

To t h e e x t e n t t h a t the Commission i n v e s t i g a t i v e a t t o r n e y has taken a

p o s i t i o n on t h e trade secret i s s u e s , t h e s taf f agrees with Viscofan t h a t

c e r t a i n o f Union Carbide's alleged trade secrets either do not have any

value as trade secrets, c o n s i s t o f information a v a i l a b l e from o t h e r p u b l i c

s o u r c e s , o r have l o s t t h e i r secrecy by v i r t u e o f p lant t o u r s o r d i s c l o s u r e

i n expired agreements. On t h e i s s u e o f a c t u a l misappropriat ion, t h e s taf f

i s o f t h e opinion t h a t t h e drawings and parts a l l e g e d l y s t o l e n from V l s c o r a

d i d not c o n t a i n any of t h e t r a d e secrets a s s e r t e d i n t h i s i n v e s t i g a t i o n .

(Commission I n v e s t i g a t i v e Attorney PB, pp. 7-24).

There i s no q u e s t l o n t h a t misappropriat ion o f t r a d e secrets, i f

e s t a b l i s h e d , i s an u n f a i r method o f compet i t ion o r u n f a l r act which fa l ls

< t h i n t h e purview o f S e c t i o n 337. - S e e I n re Von Clem, 108 U.S.P.Q. 371

(C.C.P.A. 1955); C e r t a i n Apparatus f o r t h e Continuous Production o f Copper

- Rod, Inv. No. 337-TA-52, 206 U.S.P.Q. 138 (XTC 1979) (Copper Rod). The

Commission has set f o r t h four criteria which must be proven t o e s t a b l i s h

misappropriat ion o f a t r a d e secret:

(1 ) not i n t h e p u b l i c domain;

the e x l s t e n c e o f a t r a d e secret which i s

(2 ) t h a t t h e complainant i s t h e owner o f t h e trade secret o r possesses a p r o p r i e t a r y i n t e r e s t t h e r e i n ;

(3) that the complainant d i s c l o s e d t h e t r a d e secret t o respondent w h i l e i n a c o n f i d e n t i a l r e l a t i o n s h i p o r that t h e respondent wrongfully took t h e t rade secret by u n f a f r means; and

(4 ) t h a t t h e respondent has used o r d i s c l o s e d t h e trade secret causing i n j u r y t o t h e complainant.

Copper Rod, 206 U.S.P.Q. a t 156.

244

1 .

The Restatement o f t h e L a w o f T o r t s a t S e c t i o n 757, Comment

b provides u s e f u l guidance i n d e f i n i n g what i s meant by a

trade secret and i n a s s e s s i n g whether t h e r e q u i s i t e l e v e l o f

secrecy exists.

as

The Restatement d e f i n e s a t r a d e secret

any formula, p a t t e r n , d e v i c e o r compilat ion o f information which i s used i n one's b u s i n e s s , and which g i v e s him an opportunity t o o b t a i n an advantage over competi tors who do not know o r u s e it. It may b e a formula f o r a chemical compound, a process o f manufacturing, t r e a t i n g or preserving materials, a p a t t e r n f o r a machine o r o t h e r d e v i c e , o r a l i s t o f customers. It d i f f e r s from o t h e r secret information i n a bus iness . . . i n t h a t i t i s not simply information as t o single o r ephemeral e v e n t s i n t h e conduct o f t h e bus iness . . . A t r a d e secret i s a process o r d e v i c e f o r continuous use i n t h e operat ion o f t h e bus iness .

The policy underlying t r a d e . s e c r e t p r o t e c t i o n i s not t o encourage

development o f secret processes o r d e v i c e s , but r a t h e r t o p r o t e c t a g a i n s t

breach o f f a i t h and reprehens ib le means o f l e a r n i n g another 's secret.

Thus, there i s no requirement t h a t a t rade secret meet a standard o f nove l ty

and i n v e n t i o n as required f o r p a t e n t a b i l i t y . Never the less , t h e r e must exist

a s u b s t a n t i a l element o f s e c r e c y , so that "except by t h e u s e o f improper

means, there would be d i f f i c u l t y i n acquir ing t h e information."

Relevant f a c t o r s f o r determining t h e e x i s t e n c e o f a t r a d e

secret inc lude :

( 1 ) t h e e x t e n t t o which t h e information i s known o u t s i d e o f [complainant's] b u s i n e s s ; (2) t h e e x t e n t t o which i t i s known by employees and o t h e r s involved i n [complainant 's] -bus iness ; (3) t h e e x t e n t o f measures taken by [complainant) t o guard t h e secrecy of t h e in format ion ; (4) the va lue o f t h e information t o [ c m p l a i n a n t ] and t o h i s compet i tors ; (5) t h e amount o f e f f o r t o r money expended by [complainant] i n developing t h e in format ion ; (6) t h e ease o r d i f f i c u l t y wi th which the informa- t i o n could be properly acquired o r dupl ica ted by o thers .

24 5

Restatement o f Law of T o r t s , 0 757, Comment b (1939). -- See a l s o Milgrim,

Trade S e c r e t s , 0 2.01 (1980).

The point of departure for a n a l y s i s of misappropriation o f a t rade

secret i s actual secrecy. McCraw-Edison Co. V. Centra l Transformer Corp.,

135 U.S.P.Q. 53, S5 ( 8 t h C i r . 1962). Thus, matters o f general knowledge i n

t h e industry , o r those t h a t can be r e a d i l y discerned are not e l i g i b l e f o r

t rade secret protec t ion . Motorola, Inc . V. F a i r c h i l d Camera & Instrument

Corp., 177 U.S.P.Q. 614, 620-21 (D. A r k . 1973) and cases c i t e d there in .

614, 620-21 (D. Arlz. 1973) and cases c i t e d therein . P a t t e r s d i s c l o s e d

I n patents also vi11 des t roy any claims o f t r a d e secret. Henry Hope

X-Ray Products , Inc. v e Marron Carrel, I n c . , 216 U.S.P.Q. 762, 765 (9th

C i g . 1982). However, a specific embodiment of genera l concepts o r a I

coaebination of elements , some or all o f which may be known i n t h e industry ,

may be p r o t e c t l b l e as a t r a d e secret.

W h i t f i e l d , 203 U.S.P.Q. 1020, 1024 (Col. 1977).

g b e r t e x Computer Products, Inc. V.

Information t h a t nay be e l i g i b l e f o r protec t ion as a trade secret

may l o s e t h a t p r o t e c t i o n i f adequate s t e p s are not taken t o maintain

secrecy.

i s not -necessary f o r secrecy t o be absolute .

Co., Iuc., 183 U.S.P.Q. 724, 725-26 (9 th C i r . 1974); Wheelabratot Corp.

V. Fogle , 167 U.S.P.Q. 72 (W.D. La. 1970); U.S.M. Corp'v. Marson Fastener

Corp., 204 U.S.P.Q. 233 (Mass. 1979). The burden on complainant I s t o

e s t a b l t s h t h a t reasonable precautions were taken t o preserve s e c r e c y t o

Although t h e r e must be a s u b s t a n t i a l element o f s e c r e c y , i t

K-2 Ski Co. V. Head Ski

ensure t h a t it would be d i f f i c u l t f o r o t h e r s t o d iscover t h e secret without

t h e use of improper means. Henry Hope X-Ray Products , Inc . V. Marron

Carrell, I n c . , 216 U.S.P.Q., a t 764.

246

Once i t i s e s t a b l i s h e d t h a t a t r a d e secret ex i s t s and t h a t i t s s e c r e c y has

been adequately p r o t e c t e d , i t must be determined how respondent gained access

t o t h e information. It i s legitimate t o d i s c o v e r a secret process by r e v e r s e

engineer ing on t h e f i n i s h e d product, o r a secret process may f a i r l y be used i f

i t i s gained by independent research.

l a b o r s by tak ing t h e process from t h e d i s c o v e r e r without h i s permission a t a

time when he is t a k i n g reasonable precaut ions t o maintain i t s secrecy."

However, "one may not avoid t h e s e

E. I . DuPont de Nemours 6 Co. V. Chr is topher , 166 U.S.P.Q. 421, 424 ( 5 t h

C i r . 1970). When respondent asserts t h a t h i s use o f t h e secret process

i s t h e product o f independent development, respondent bears a heavy

burden o f persuasion t o show t h a t independent development. Cybertek

Computer Products , I n c . V. W h i t f i e l d , 203 U.S.P.Q. a t 1024-25. -.

Furthermore, i t i s nbt enough t o assert t h a t a secret process

could have been developed independently, without access t o t h e c o n f i -

d e n t i a l source o f information. Sperry Rand Corp. V. R o t h l e i n , 143

U.S.P.Q. 173, 182 (D. Conn. 1964). It is a l s o not an adequate defense

t o assert t h a t complainant did n o t t a k e adequate s e c u r i t y measures if

t h e s e c u r i t y l a p s e was not t h e cause o f t h e misappropriat ion. Syntex

Opthalmics, Inc . V. Novickly, 214 U.S.P.Q. 272, 277 (N.D. Ill. 1982).

The claims o f t r a d e secret misappropriat ion by Union Carbide and t h e

defenses presented by Viscofan must be s c r u t i n i z e d i n l i g h t o f t h e

foregoing cons idera t ions .

Although Union Carbide a l l e g e s t h a t i t s o v e r a l l , i n t e g r a t e d sausage

c a s i n g manufacturing o p e r a t i o n s comprise a t r a d e secret which has been

misappropriated by V i s c o f a n , seven specific t r a d e secrets have been

designated as r e s p r e s e n t a t i v e examples f o r purposes o f t h i s i n v e s t i g a t i o n .

24 7

These seven trade secrets f a l l broadly i n t o either Union Carbide's

e x t r u s i o n o p e r a t i o n s o r i t s s h i r r i n g operat ions .

B e f o r e c o n s i d e r i n g each o f t h e trade secrets asserted by Unlon Carbide

i n l i g h t o f t h e foregoing criteria, i t i s u s e f u l t o summarize the h i s t o r y

o f Viscofan ' s o p e r a t i o n s and t h e e v e n t s which occurred i n F r a n c e and Spain

which form t h e basis of Union Carbide's a l l e g a t l o n s of t h e f t .

Background o f V i s c o f a n ' s Operations

V i s c o f a n was f o r m a l l y organized i n 1975 f o r t h e purpose o f manufacturing

c e l l u l o s e sausage casings.

i n t h e formation o f V i s c o f a n , Papelera and Pingon.

which had eldsted at least s i n c e the 1940's, and was involved i n t h e

manufacture of ce l lophane f i l m .

w i t h c e l l u l o s e c a s i n g s , but d i d not at tempt to manufacture them commercially.

(F indings o f Fact 20-25).

There were two conpanlee p r i n c i p a l l y involved

Papelera was a company

In t h e 1940'8, Papelera had experimented

In the 1970's, Papelera a g a i n became i n t e r e s t e d i n manufacturing

c e l l u l o s e sausage c a s i n g s , and set up a p i l o t p l a n t t o develop t h e necessary

manufacturing processes . Papelera and Pingon I n t e r n a c i o n a l (Pingon), a

company involved i n c o l l a g e n c a s i n g s , t h e n c o l l a b o r a t e d t o set up Viscofan.

Sometime around 1976-1978, a p i l o t p l a n t was set up at Viscofan ' s faci l i ty

at Caseda, which apparent ly continued t h e development work commenced at

Papelera. (F indings o f Fact 21-25). By 1979, V i s c o f a n had succeeded

i n producing a casing o f commercial q u a l i t y , and commenced manufacture and

sale of c e l l u l o s e casings. -

(Findings o f Fact 27., 28). The s o u r c e o f

technology u t i l i z e d by V i s c o f a n i n the development o f i ts manufacturing

p r o c e s s e s i s the c e n t r a l i s s u e presented by this i n v e s t i g a t i o n .

2 48

Events i n France and Spain

,

A c e n t r a l area o f d i s p u t e connected wi th t h e i s s u e o f t r a d e secrets

concerns t h e evidence o f f e r e d by Union Carbide i n support o f i t s c l a i m o f

t h e f t . The h i s t o r y o f these events begins i n about 1 9 7 5 , t h e year i n which

Viscofan was f o n n a l l y organized , and t h e y e a r i n which two of Viscofan ' s

p r i n c i p a l s , Leopoldo Michelena and Jesus B a r b e r , t r a v e l e d t o France t o d i s c u s s

with Bernard Thery, V i s c o r a ' s chairman, t h e p o s s i b i l i t y o f o b t a i n i n g a l i c e n s e

f o r Union Carbide's c e l l u l o s e c a s i n g technology.

267).

was not i n a p o s i t i o n h imse l f t o license V l s c o f a n , so he r e f e r r e d Messre.

Michelena and Barber t o Union Carbide i n New York.

(Findings o f F a c t 2 0 , 266,

S i n c e V i s c o r a was a l i c e n s e e o f t h i s technology at t h e t ime, Mr. Thery

(Finding o f F a c t 268).

I n e a r l y 1 9 7 9 , Mr. Thery a g a i n heard from Mr. Barber , who reques ted

a meeting wi th M r . Thery , a t which he recounted t h e d e t a i l s o f e f f o r t s

t o o b t a i n V i s c o r a ' s c a s i n g technology over t h e preceding t h r e e and a h a l f

years. (Finding o f F a c t 290). I n Mr. B a r b e r ' s account , t h e c e n t r a l cast o f

c h a r a c t e r s included h i m s e l f , Mr. Michelena and Bartolome Font. (Findings o f

F a c t 2 3 , 2 5 , 2 6 9 , 290). Barber i n d i c a t e d t h a t after t h e i r unsucess fu l v i s i t

wi th Mr. Thery i n 1 9 7 5 , Barber and Michelena went immediately t o Beauvais ,

where they u l t i m a t e l y made c o n t a c t with Bartolome Font.

had gone bankrupt, he was no l o n g e r working at Viscora.

ensued, Barber claimed t h a t Font i n effect coordinated t h e e f f o r t s t o remove

t e c h n i c a l drawings and s p e c i f i c a t i o n s and p i e c e s of equipment from t h e Beauvais

p lant .

which was a l l e g e d l y used t o copy-drawings, which were then re turned t o t h e

V i s c o r a plant .

i t s use.

S i n c e Font ' s employer

Over t h e t ime t h a t

Font had a photocopy machine i n s t a l l e d i n his apartment i n P a r i s ,

The drawings and p a r t s were apparent ly s e n t t o V i s c o f a n f o r

The i n d i v i d u a l s a l l e g e d t o be involved i n t h i s o p e r a t i o n at V i s c o r a ,

249

inc luding Font , Jean DuBois, Maurice DuBois, Jacques C l i c h e t and Jean Busqueres,

were a l l e g e d l y paid f o r t h e i r e f f o r t s by Viscofan.

272-283, 287-288).

(Findings o f F a c t 269 ,

Barber then o f f e r e d h i s a s s i s t a n c e t o Thery i n any a c t i o n t h a t might be

- . pursued, c

. Apparently Barber 's sudden w i l l i n g n e s s t o assist V i s c o r a , a few

s h o r t y e a r s after he was engaged i n i t s p i l l a g e , was rnotivated'by-a f a l l i n g

out between he and Michelena. (F indings o f F a c t 289 , 291-294).

_ _ ~ - , ~

. (Finding o f F a c t 294) .

, -. I n t h e c r i m i n a l proceedings t h a t fo l lowed, t h e French police conducted a n

e x t e n s i v e i n v e s t i g a t i o n , which included

. . (Findings

o f F a c t 295-299). A t r i a l was held i n 1983, and c e r t a i n i n d i v i d u a l s were

convic ted o f t h e f t and/or corrupt ion o f p r i v a t e company employees.

o f F a c t 300. 302).

p r o p r i e t a r y va lue o f t h e items s t o l e n .

(F indings

This judgment made no f i n d i n g s concerning t h e secrecy o r

A similar a c t i o n was commenced by V i s c o r a i n Spain on t h e b a s i s o f t h e

same facts.

on t h e i r f i n d i n g s concerning t h e similarities between Viscofan 's and Vlscora ' s

opera t ions . However, t h e c o u r t determined t h a t i t d i d not have j u r i s d i c t i o n

t o c o n s i d e r t h e a l l e g e d acts o f t h e f t which occurred abroad.

F a c t 303-3 12).

The Spanish c o u r t had a team o f c i v i l engineers s tudy and report

(Findings o f

250

There i s c o n s i d e r a b l e controversy over t h e use and e f f e c t o f t h e French

and Spanish proceedings i n t h e present i n v e s t i g a t i o n . S u b s t a n t i a l parts o f

t h e record o f each o f t h e s e proceedings appear i n t h e record o f t h i s i n v e s t i -

g a t i o n pursuant t o L e t t e r s Rogatory i ssued t o t h e r e s p e c t i v e Franch and

Spanish a u t h o r i t i e s .

Spanish c o u r t s are a l s o o f record here . (UCX 24, 614, 615). The f indings

made i n both proceedings have been e x t e n s i v e l y reported by Union Carbide i n

i t s proposed f i n d i n g s o f fact.

(UCX 1-180). The judgments rendered by t h e French and

(See g e n e r a l l y , UCPF 33-183).

Viscofan has vo iced strenuous o b j e c t i o n t o t h e use o f t h e material

from t h e s e proceedings i n t h e present i n v e s t i g a t i o n . Its primary reasons f o r

o b j e c t i o n are three-fold. F i r s t ,

. (Finding o f

F a c t 294). Second, t h e evidence obtained from wi tnesses was g e n e r a l l y based

on i n t e r r o g a t i o n by p o l i c e o f f i c e r s i n t h e form o f sworn statements . Thus,

t h e s e wi tnesses d id not appear i n c o u r t and were not s u b j e c t t o c r o s s examin-

a t i o n . F i n a l l y , i n the French proceeding, n e i t h e r Michelena nor Font appeared

p e r s o n a l l y , and t h e judgments rendered a g a i n s t them were by d e f a u l t . (Findings

o f F a c t 301, 302).

With respect to Mr. Barber , i t i s unnecessary f o r t h e purposes o f t h i s

i n v e s t i g a t i o n t o r e s o l v e , or even t o s p e c u l a t e

25 1

The manner o f i n t e r r o g a t i n g witnesses i n the European proceedings

a l s o does not c a l l f o r e x t e n s i v e c r i t i q u e . The French and Spanish

o f f i c i a l s conducted t h e i r proceedings i n accordance with t h e i r normal,

l e g a l l y mandated, practices and procedures. The r e s u l t s o f those

proceedings have no c o l l a t e r a l es toppel o r res j u d i c a t a effect i n t h i s

forum, and they are not i n t h i s record f o r purposes o f enforcement o f

any f o r e i g n criminal judgments. The noncriminal nature o f t h e present

proceeding makes i t q u i t e unwarranted t o engage i n any measurement o f

t h e f o r e i g n proceedings a g a i n s t United S t a t e s s tandards o f c r i m i n a l

process.

In s h o r t , t h e judgments made by t h e French and Spanish c o u r t s , and

, t h e underlying documents on which they were based, s tand i n t h i s record

e x a c t l y as they are, n e i t h e r r a t i f i e d nor r e j e c t e d by t h i s forum.

documents are r e l e v a n t t o , but do not n e c e s s a r i l y c o n c l u s i v e l y d e c i d e , t h e

These

l i m i t e d i s s u e o f t h e occurrence o f t h e f t , and i n no way r e l i e v e Union

Carbide o f i ts burden o f e s t a b l i s h i n g every o t h e r necessary element I n c i d e n t

t o t r a d e secret p r o t e c t i o n .

As w i l l become apparent from t h e i n d i v i d u a l c o n s i d e r a t i o n o f Union

Carbide's t r a d e secrets, t h e evidence submitted from t h e French and Spanish

proceedings i s n o t an indispensable element o f t h e f i n d i n g o f misappropr ia t ion ,

but r a t h e r serves as corroborat ion t o t h e overwhelming i n f e r e n c e i n c e r t a i n

i n s t a n c e s t h a t misappropriat ion must have occurred. S p e c i f i c i n s t a n c e s o f

unexplained s i m i l a r i t y between Viscora and Viscofan equipment which go far

beyond any p o s s i b i l i t y o f co inc idence provide ample c i r c u m s t a n t i a l evidence

t h a t Viscofan had s i g n i f i c a n t information about Viscora ' s o p e r a t i o n s

252

beyond that w h i c h was a v a i l a b l e through l e g i t i m a t e means. Viscofan 's

attempts t o disavow o r e x p l a i n away these remarkable similarities w i t h

o f t e n vague o r improbable test imony create an even s t r o n g e r i n f e r e n c e of

misappropriation.

Accordingly, t h e evidence on th i s record developed independently

o f t h e French and Spanish proceedings i s enough t o e s t a b l i s h an i r r e s i s t i b l e

) r o b a b i l i t y t h a t Viscofan had access t o and benef i ted from s i g n i f i c a n t

amounts o f c o n f i d e n t i a l and p r o p r i e t a r y Union Carbide technology, and t h a t

t h i s access was gained by r e p r e h e n s i b l e means. The effect o f t h e French

and Spanish proceedings i s merely t o c o r r o b o r a t e . t h a t p r o b a b i l i t y and t o

provide an explanat ion f o r how t h a t access apparent ly was gained. Rohm and

4 Haas Co. V . Adco Chemical - Co., 215 U.S.P.Q. 1081, 1085 (3d C l r . 1982). The

focus o f i n q u i r y i n t h e present i n v e s t i g a t i o n i s not on t h e c u l p a b i l i t y o f

t h e indiv iduals involved , but r a t h e r on t h e b e n e f i t s der ived by Viscofan by

those a c t i n g on i t s behal f .

253

Extrusion - Related rrade Secrets

1. Carryover

The f i r s t a r e a o f Union Carbide's s k i n l e s s c a s i n g technology i n which

it a l l e g e s t h a t Viscofan has misappropriated t r a d e secrets r e l a t e s t o the

carryover or tower i n the e x t r u s i o n phase of t h e manufacturing operat ion.

It i s Union Carbide's p o s i t i o n that t h e des ign o f t h e

s e c t i o n ,

c a r r y o v e r

secret and p r o p r i e t a r y information.

(Vnion Carbide PB, p. 5; UCX 467, pp. 4-6).

Viscofan counters Union Carbide's a l l e g a t i o n s by asserting, i n e s s e n c e ,

t h a t Viscofan 's e x t r u s i o n tower c o n f i g u r a t i o n was t h e product o f independent

development; t h a t Viscofan l e g i t i m a t e l y obtained p e r t i n e n t drawings from 1

i t s c o n s u l t a n t , Raymond B a x t e r ; t h a t t h e p a r t i c u l a r technology claimed

e i t h e r i s known i n t h e industry or has ceased t o be secret because it can

be observed i n p lant t o u r s , and t h a t t h e specific c o n f i g u r a t i o n a l l e g e d

t o have been s t o l e n serves no p a r t i c u l a r purpose, and thus cannot be

considered o f p r o p r i e t a r y value. (Viscofan PB, pp. 33-36). Furthermore,

Viscofan claims t h a t t h e c o n f i g u r a t i o n o f t h e carryover at V i s c o r a is

d i f f e r e n t from t h a t employed i n t h e United S t a t e s , t h u s , Union Carbide does

not u t i l i z e t h e a l l e g e d t r a d e secret domest i ca l ly .

As i s t h e case wi th many o f Union Carbide's a s s e r t e d t r a d e secrets,

r e s o l u t i o n o f t h e p e r t i n e n t i s s u e s r e l a t i n g t o t h e c a r r y o v e r r e q u i r e s a

c a r e f u l e v a l u a t i o n of the elements o f t h e technology which comprise t h e

a c t u a l t r a d e secret as d i s t i n g u i s h e d from o t h e r elements which do not have

any i n t r i n s i c p r o p r i e t a r y v a l u e , but r a t h e r are a s s e r t e d t o demonstrate

misappropriat ion o f the technology.

254

The development of carryover technology i n connection with

ext rusion of casings occurred a t Union Carbide i n about the late

1950's o r e a r l y 1960's. The purpose of this development was

. (Finding

o f Fac t 110).

t r a n s f e r r e d t o Viscora in about the same year . (Findings of F a c t 110,

This development was completed by Union Carbide i n 1966 and 4

112-113).

Union Carbide a l s o used

(Finding of F a c t 1 11 )

25 5

The record h e r e i n d i c a t e s t h a t t h e carryover technology , t o g e t h e r

with t h e , were developed by

Union Carbide i n t h e United S t a t e s and t r a n s f e r r e d t o t h e V i s c o r a f a c i l i t y .

Apar t from numerous c o n f i d e n t i a l drawings o f Union Carbide and V i s c o r a ,

t h e r e i s nothing on t h i s record t o i n d i c a t e t h a t t h e p r i n c i p l e s and p r a c t i c a l

detai ls o f carryover technology as p r a c t i c e d by Union Carbide and

V i s c o r a were d i s c l o s e d i n any p u b l i c l y a v a i l a b l e materials. From t h e

evidence o f r e c o r d , t h e conc lus ion fo l lows t h a t t h e carryover technology

wi th i t s re f inements i s v a l u a b l e p r o p r i e t a r y in format ion owned by Union

Carbide . I n l i g h t o f t h e f o r e g o i n g , i t must be considered how Viscpfan ' s d e s i g n

o f i t s e x t r u s i o n tower so c l o s e l y resembles t h a t o f Viscora . The accumulated

evidence demonstrates t h a t Viscofan ' s e x t r u s i o n towers , as o r i g i n a l l y set

up i n i t s p i l o t p l a n t a t Caseda, and cont inuing u n t i l a t least 1982, bear a

s t r i k i n g resemblance t o t h e c o n f i g u r a t i o n used at Viscora .

(F indings o f F a c t 114, 117, 118, 120).

A comparison o f p e r t i n e n t Viscofan and V i s c o r a drawings r e v e a l s an

exact i d e n t i t y of , with t h e except ion t h a t Viscofan

u t i l i z e s

(Findings o f F a c t 120, 126). Never the less , c e r t a i n f e a t u r e s o f Viscora ' s

tower c o n f i g u r a t i o n , notab ly

, are e x a c t l y reproduced i n

Viscofan ' s drawings. (F indings o f fact 120, 121, 125). This s i m i l a r i t y

256

becomes more remarkable when V i s c o r a ' s

Carbide 's , from whom Viscora o r i g i n a l l y rece ived i t s e x t r u s i o n machine '

drawings. Union Carbide's carryover c o n f i g u r a t i o n has n e i t h e r t h e

i s compared t o Union

nor t h e found i n Viscora ' s tower.

(F indings of Fact 109, 114).

Although Viscora has been unable t o point t o any p a r t i c u l a r advantage

der ived from , t h i s c o n f i g u r a t i o n provides a d i s t i n c t i v e

p r o f i l e not d e p i c t e d i n any o f t h e numerous drawings on t h i s record except

those o r i g i n a t i n g from Viscora and Viscofan.

convincingly compels t h e conc lus ion t h a t t h e f u n c t i o n s c a r r i e d out by t h e

The test imony on t h i s record

e x t r u s i o n tower a l l o w c e r t a i n v a r i a t i o n s i n t h e

. Notably, t h e important c o n s i d e r a t i o n

. (Findings o f

Fact 115, 135 ).

Viscofan 's a s s e r t i o n s t h a t i t developed i t s e x t r u s i o n tower technology

independently do not survive c l o s e r s c r u t i n y . F i r s t , V iscofan p o i n t s t o

early sketches of i t s tower technology a l legedly t r i e d at t h e p i l o t p lant

a t Papelera. (Finding o f Fact 117) . It i s unexplained how Viscofan proceeded

from very rough sketches bear ing no recognizable r e l a t i o n s h i p t o i t s

machines a t Caseda, t o detai led engineer ing drawings i n 1977 of t h e machine

set up at Caseda.

Second, t h e r e i s no s a t i s f a c t o r y explanat ion f o r t h e e x a c t i t u d e between

c e r t a i n por t ions o f a V i s c o r a drawing and Viscofan drawing. Viscofan ' s drafts-

man, Mr. L i z a r r a g a , claims t o have made a drawing from a s k e t c h , and denies having

25 7

traced i t from another drawing. (F indings o f F a c t 121, 125). However, a

comparison o f h i s drawing wi th a V i s c o r a drawing r e v e a l s such i d e n t i t y down

t o f i n e and a r b i t r a r y d e t a i l s t h a t one could only have been t r a c e d from t h e

o t h e r . (Finding o f F a c t 121). The sugges t ion t h a t V i s c o r a t r a c e d t h e

drawing from V i s c o f a n s t r a i n s c r e d u l i t y beyond t h e breaking point . The

V i s c o r a drawing can be r e l i a b l y t r a c e d back t o an o r i g i n a l drawing made i n

1963,

. (F indings o f F a c t 122, 123, 125, 126). I n view o f t h e

f o r e g o i n g , t h e c o n c l u s i o n i s compelled t h a t Viscofan had access t o V i s c o r a

drawings when i t designed i t s e x t r u s i o n towers.

I

T h i r d , Viscofan ' s claim t h a t i t obta ined t h i s technology from Raymond

B a x t e r f i n d s no support i n t h e record. The drawing a l l e g e d l y provided t o

Viscofan by B a x t e r d a t e s from 1959, and not only does i t show a d i f f e r e n t

tower c o n f i g u r a t i o n from t h a t adopted by V i s c o f a n , but i t a l s o does not

i n d i c a t e , s i n c e t h a t technology had not been developed by

then. (F inding o f F a c t 130). More important ly , Mr. Baxter was not

engaged by Viscofan u n t i l March 1978, s h o r t l y b e f o r e t h e p i l o t p l a n t began

i t s f i r s t product ion tes t s . As concluded by t h e team o f Spanish engineers

who s tudied V i s c o f a n ' s and Viscora ' s o p e r a t i o n s , i t i s i n c o n c e i v a b l e , i n

view o f t h e t iming o f Mr. Baxter ' s a r r i v a l , t h a t he could have a s s i s t e d i n

258

t h e d e s i g n , c o n s t r u c t i o n and set-up o f Viscofan ' s p i l o t p l a n t . (F inding

9/ o f F a c t 131-134).-

Four th , V i s c o f a n ' s t e c h n i c a l e x p e r t , D r . Dudzik, s t a t e d h i s opin ion

t h a t . (Dudzik, V U

538, p. 18). T h i s conc lusory s ta tement , unsupported as i t i s by any p u b l i c

d i s c l o s u r e o f i n t h e i n d u s t r y , i s

outweighed by evidence o f t h e e f f o r t expended by Union Carbide t o develop a

s o l u t i o n t o t h e problem o f . (Finding o f

Fact 110) . F i f t h , V i s c o f a n ' s p r o p o s i t i o n t h a t Union Carbide's

are not secret overlooks s e v e r a l p e r t i n e n t d e t a i l s . Union

I Carbide's U.S. L e t t e r s Patent 2 , 0 1 3 , 4 9 1 ( '491 patent ) t e a c h e s t h a t t h e

mandrel l e n g t h i n t h e aquarium should be equal t o or g r e a t e r than 72

inches . I n a d d i t i o n , t h i s patent relates t h e l e n g t h o f t h e mandrel t o t h e

speed of opera t ion . (VRX 13). Never the less , t h i s d i s c l o s u r e does not

suggest , as used by Union Carbide.

- 9/ The r e p o r t o f t h e Spanish engineers was made i n connect ion w i t h t h e l i t i g a t i o n between V i s c o r a and V i s c o f a n i n Spain. Although t h e f indings conta ined i n t h i s r e p o r t , as well as t h e Spanish l i t i g a t i o n as a whole, are i n no way binding on t h i s forum, wi th in c e r t a i n l i m i t a t i o n s , t h i s r e p o r t i s r e l e v a n t and probat ive . The Spanish engineers ass igned t o s tudy t h e operat ions o f Viscora and Viscofan possess a l e v e l o f engineer ing s k i l l s u f f i c i e n t t o enable them t o e v a l u a t e t h e similarities between Viscora's and Viscofan ' s f a c i l i t i e s . A t t h e same time, t h e s e engineers were appointed by t h e c o u r t , and thus ref lect an important measure o f o b j e c t i v i t y . Although t h e report i s s u e d by t h e s e gentlemen c a r e f u l l y avoided any s p e c i f i c d i s c u s s i o n o f p o s s i b l e t r a d e secrets, and i n fact concluded t h a t c e r t a i n areas were similar due t o p u b l i c a v a i l a b i l i t y , t h e i r a n a l y s i s and c o n c l u s i o n s are r e l e v a n t and i n s i g h t f u l t o t h i s proceeding. (See - g e n e r a l l y , Pasca Mora dep., UCPX 125 ; UCX 172).

259

I

I n view of t h e fact t h a t V i s c o r a uses , it i s d i f f i c u l t t o

imagine t h a t V i s c o f a n independently a r r i v e d a t a

, when t h e '491 patent d i s c l o s e s a 72 i n c h mandrel, and Union

Carbide makes use of . (UCX 350, 356).

The c l o s e n e s s i n an undisc losed dimension between V i m o f a n and V i s c o r a

e x t r u s i o n mandrels s t r o n g l y sugges ts t h a t Viscofan had access t o V i s c o r a ' s

technology.

Viscofan a l s o p o i n t s out t h a t Union Carbide 's U.S. L e t t e r s Patent

2,043,455 ('455 p a t e n t ) d i s c l o s e s (VRX 14) .

However, t h i s d i s c l o s u r e i s made w i t h i n t h e c o n t e x t of an e x t r u s i o n device

. Thus, t h e d i s c l o s u r e of t h e

I '455 p a t e n t , even combined with t h e teaching of t h e ' 4 91 patent does not

suggest t h e combination of a

. The p r a c t i c a l a p p l i c a t i o n o f by Union

Carbide and V i s c o r a goes far beyond t h e g e n e r a l d i s c l o s u r e made i n t h e s e

two patents .

F i n a l l y , Viscofan a s s e r t s t h a t t h e claimed s e c r e c y of Union Carbide's

t r a d e secrets has been l o s t by means o f t h e p l a n t t o u r s g iven by Viscora .

As a g e n e r a l p r o p o s i t i o n , a p l a n t t o u r w i l l not r e s u l t i n d i s c l o s u r e o f

t rade secrets if t h e g u e s t s are unable t o view t h e process i n s u f f i c i e n t

de ta i l t o d i s c e r n t h e claimed trade secret. Copper Rod, 206 U.S.P.Q. a t

158.

26 0

I n connect ion wi th Union Carbide's claimed t r a d e secret i n i t s

e x t r u s i o n tower , t h e r e can be no doubt t h a t a p lant t o u r could not r e v e a l

t h e detai ls o f the tower t o t h e e x t e n t shown i n Viscofan ' s drawings,

nor does Viscofan appear t o claim t h a t i t obtained t h i s information from a

p lant tour . However, i n view o f t h e fact t h a t an e x t r u s i o n tower i s

approximately , a tour which goes o n l y t o t h e top o f t h e

aquarium cannot r e v e a l many detai ls about t h e c o n s t r u c t i o n o f t h e tower.

The a b i l i t y t o see on a p lant tour c e r t a i n l y does

not r e v e a l dimensional d e t a i l s , nor t h e r e l a t i o n s h i p o f t o

. (See - Demont, Tr. 681-83). I n a d d i t i o n ,

although a gues t on a tour can see t h e aquarium, it is doubt fu l t h a t i t

would be p o s s i b l e t o a s c e r t a i n t h e exact l e n g t h of t h e aquarium. C e r t a i n l y

t h e length of t h e e x t r u s i o n mandrel would be unknown, since it i s i n s i d e

t h e aquarium. Thus, a p lant tour cannot be said t o d i s c l o s e Union Carbide's

claimed t r a d e secrets i n t h i s area.

I n view of t h e foregoing a n a l y s i s , t o g e t h e r wi th t h e r e l e v a n t f i n d i n g s

o f f a c t , I conclude t h a t t h e technology r e l a t i n g t o Union Carbide's e x t r u s i o n

tower , or carryover c o n s i s t s o f v a l u a b l e , propr ie tary information

owned by Union Carbide and not f r e e l y d i s c l o s e d or otherwise p u b l i c l y

a v a i l a b l e . The tower technology c u r r e n t l y u t i l i z e d by Viscofan i s so c l o s e

i n s t r u c t u r a l d e t a i l s t o t h a t o f Viscofan t h a t t h e conc lus ion is compelled

t h a t Viscofan ' s technology could only have been derived from p r o p r i e t a r y

Viscora drawings and t e c h n i c a l information. (F indings o f Fact 119, 127-129).

Within t h e context o f t h e evidence presented on t h i s r e c o r d , I f i n d t h a t

V i s c o f an ' s carryover technology was developed by means o f misappro-

p r i a t i o n o f Union Carbide's t rade secrets.

261

2. Extrus ion Nozzle and Mandrel Assembly

The second t r a d e secret which Union Carbide a l l e g e s has been mis-

appropriated by Viscofan pertains t o Union Carbide's e x t r u s i o n nozzle

and mandrel assembly. Although t h e r e are c e r t a i n minor d i f f e r e n c e s

between Union Carbide's and Viscofan 's n o z z l e s , i t is not s e r i o u s l y

disputed t h a t the design and c o n s t r u c t i o n of both is s u b s t a n t i a l l y t h e

same. Viscofan a t t r i b u t e s t h i s s i m i l a r i t y t o the fact t h a t t h e r e are

s e v e r a l p a t e n t s owned by Union Carbide and o t h e r p u b l i c a t i o n s d i s c l o s i n g

t h e design of e x t r u s i o n nozzles . I n a d d i t i o n , Viscofan claims t o have

rece ived a drawing from M r . Baxter . It i s e s t a b l i s h e d t h a t both Union

Carbide and Viscota use s u b s t a n t i a l l y i d e n t i c a l e x t r u s i o n nozz les and

4 mandrel assemblies . (Findings o f F a c t 136-141). r.

The e x t r u s i o n nozz le and mandrel assembly are a cri t ical p a r t of t h e

e x t r u s i o n p r o c e s s , i n t h a t they begin the process by br inging t o g e t h e r t h e

v i s c o s e and a c i d bath t o extrude t h e v i s c o s e i n t u b u l a r form and then t o

begin t h e coagula t ion and regenerat ion process .

d e p i c t i n g t h e nozz le i n d i c a t e s t h a t t h i s p i e c e o f equipment possesses many

i n t r i c a t e d e t a i l s which must be p r e c i s e l y machined. Although Union Carbide

a l l e g e s t h a t i t s e n t i r e e x t r u s i o n nozz le technology i s a t r a d e secret,

A review o f t h e drawings

t h e r e are e s s e n t i a l l y f i v e d e t a i l s which b e a r s c r u t i n y .

i n c l u d e :

These elements

(Findings of F a c t 138,

140 , 141).

26 2

W i t h respect t o t h i s claimed trade secret, the element o f s e c r e c y i s an

important f a c t o r a s i t relates t o the b a s i c design o f the nozzle and mandrel

assembly. Unlike the e x t r u s i o n tower, which i s a comparatively recent

development, t h e e x t r u s i o n nozz le has been present i n cas ing technology

v i r t u a l l y s i n c e i t s incept ion . However, a comparison o f p e r t i n e n t articles

and p a t e n t s d a t i n g back t o t h e 1920's and 1930's with la ter patents i n the

1960's r e v e a l s t h a t e x t r u s i o n nozzle technology has developed cons iderably

over t h e years.

I n s p i t e o f t h e developmental d e t a i l s t h a t have occurred in t h e des ign

o f e x t r u s i o n n o z z l e s , c e r t a i n b a s i c e lements must be considered t o be well

known i n t h e art. These elements inc lude t h e b a s e , t h e cup, t h e core, t h e

v i s c o s e i n l e t and t h e a c i d i n l e t of t h e nozzle .

Although t h e r e i s c e r t a i n l y more than one way t o assemble t h e s e e lements ,

as evidenced by t h e d i f f e r e n c e between Teepak's and Union Carbide's e x t r u s i o n

n o z z l e s , t h e s e e lements , i n themselves , cannot be considered e l i g i b l e f o r

p r o t e c t i o n as t r a d e secrets. (Finding o f F a c t 143). The f i r s t t h r e e construc-

t i o n d e t a i l s c la imed by Union Carbide as elements o f t h e i r t r a d e secret, namely

(Finding o f F a c t 145). ..

, are d e t a i l s which have been s u b s t a n t i a l l y d i s c l o s e d i n t h e patent

l i t e r a t u r e by Union Carbide. (F indings o f F a c t 146-149). Although t h e

p e r t i n e n t p a t e n t s c o n t a i n only schematic diagrams o f t h e e lements i n ques t ion

and are thus not as complete as a d e t a i l e d engineer ing drawing, n e v e r t h e l e s s ,

t h e s t r u c t u r e d i s c l o s e d i s clear. Accordingly , i r r e s p e c t i v e of how Viscofan

may have come by i t s e x t r u s i o n nozz le technology , as t o t h e s e e lements at

l c z s t , Union Carbide has dedica ted them t o t h e p u b l i c through i t s patent

d i s c l o s u r e s .

26 3

As t o t h e remaining elements claimed by Union Carbide, namely the

., t h e r e appears t o be no p u b l i c d i s c l o s u r e

o f t h e s e c o n s t r u c t i o n d e t a i l s . The s t a t e d f u n c t i o n o f t h e s e elements

evidences t h e i r p r o p r i e t a r y v a l u e , thus q u a l i f y i n g them f o r p r o t e c t i o n

as t r a d e secrets. (Findings o f F a c t 150, 151). It has been confirmed

t h a t both of t h e s e elements can a l s o be found in Viscofan 's e x t r u s i o n

nozz le and mandrel assembly. (F indings o f F a c t 140, 141) .

Viscofan's a s s e r t i o n t h a t i t independently a r r i v e d at an e x t r u s i o n

mandrel o f remarkable s i m i l a r i t y t o Union Carbide's i s not persuasive .

The primary test imony on t h i s s u b j e c t is from Xr. Valdes , who at t h e

r e l e v a n t time was a c t i n g as a marketing c o n s u l t a n t t o Viscofan. The

n o t e s and s k e t c h e s placed i n t h i s r e c o r d , apparent ly kept by Viscofan 's

key e n g i n e e r , M r . B e r r i a t u a , are far more revea l ing . Mr. B e r r i a t u a ' s

notes of tests run i n early 1976 i n d i c a t e t h a t he was exper ienc ing

numerous problems with t h e o p e r a t i o n o f t h e e x t r u s i o n nozzle. S e v e r a l

very rough s k e t c h e s accompany h i s notes o f t h e s e tests. (Finding of

F a c t 144) . I n view o f t h e s e c o n s i d e r a b l e

B e r r i a t u a i n 1976, it i s d i f f i c u l t

t h i s r e c o r d , how Viscofan suddenly

undated, engineer ing drawings, and

nozz le by t h e time o f M r . Baxter ' s

F a c t 144; see also UCX 350 , 35).

i n t h e gaps i n t h i s area i s h i g h l y

--

d i f f i c u l t i e s encountered by Mr.

t o understand , and unenlightened on

developed r e l a t i v e l y d e t a i l e d , a l b e i t

had an apparent ly operable e x t r u s i o n

a r r i v a l i n A p r i l 1978. (Finding o f

The n o t i o n t h a t Mr. B a x t e r f i l l e d

q u e s t i o n a b l e i n view o f t h e t iming of

h i s a r r i v a l at Viscofan and t h e start up o f t h e p i l o t p l a n t at Caseda.

264

(Finding o f F a c t 134). Viscofan ' s reliance on a Portuguese drawing

a l l e g e d l y r e c e i v e d from Mr. Baxter l e a v e s unexplained t h e fact that

Viscofan's drawings are c l o s e r t o Union Carbide's i n s e v e r a l e s s e n t i a l

r e s p e c t s than they are t o t h e B r a z i l i a n drawing. ( C f . - UCX 350, 368;

VRX 99).

Lk. Dudzik asserts t h a t , with all o f the patent d i s c l o s u r e s i n hand,

it would be p o s s i b l e f o r a p e r s o n w i t h t h e appropr ia te expertise t o

des ign a commercially v i a b l e nozz le w i t h i n a week. (See - RPF 286).

propos i t ion i s b e l i e d by t h e fact t h a t M r . B e r r i a t u a had c o n s i d e r a b l e

d i f f i c u l t y i n des igning a commercially o p e r a b l e nozzle.

F a c t 144).

i o n o f p a t e n t s over a per iod o f t h i r t y t o f o r t y y e a r s make it u n l i k e l y

t h a t a workable s o l u t i o n could be achieved without c o n s i d e r a b l e t r ia l

and e r r o r . (Findings o f F a c t 145, 147-149). F i n a l l y , t h e degree

of detail p r e s e n t i n Union Carbide's engineer ing drawings and t h e h igh

s e c u r i t y c l a s s i f i c a t i o n g i v e n t o t h e s e drawings sugges t t h a t t h i s

e x t r u s i o n n o z z l e i s a h i g h l y engineered p i e c e o f equipment for which t h e

minutes t d e t a i l i s important. (Finding o f F a c t 142).

This

(Finding o f

The many v a r i a t i o n s i n n o z z l e des ign d e p i c t e d i n t h e progress-

..

I n view of t h e foregoing c o n s i d e r a t i o n s , i t i s more l i k e l y than not

t h a t V i s c o f a n had access t o Union Carbide's e x t r u s i o n nozz le technology

i n des igning i t a own e x t r u s i o n nozzle. T h i s conc lus ion i s r e i n f o r c e d by

t h e presence o f c e r t a i n o t h e r d e t a i l s which appear i n both Viscera's and

Viscofan'a e x t r u s i o n nozz les which are nowhere p u b l i c l y d i s c l o s e d .

(Findings o f F a c t 150, 151, 153). The s u b s t a n t i a l i d e n t i t y i n c o n s t r u c t i o n

between Viscofan ' s and Union Carbide's e x t r u s i o n n o z z l e s down t o minute

de ta i l make it v i r t u a l l y i n c o n c e i v a b l e t h a t Viscofan ' s could have been

der ived Independently using o n l y p u b l i c l y a v a i l a b l e fnformation.

.1

26 5

3. Chemical, Qual i ty Contro l and Manufacturing Standards and SDeci i i c a t i o n s

The t h i r d area o f Union Carbide 's s k i n l e s s c a s i n g technology

i n which i t asserts that Viscofan has misappropriated t rade secrets

p e r t a i n s t o s tandards and s p e c i f i c a t i o n s . These may be most con-

v e n i e n t l y placed i n t o t h r e e c a t e g o r i e s :

c o n t r o l s t a n d a r d s , and manufacturing s p e c i f i c a t i o n s . Although each

of t h e s e c a t e g o r i e s c o n t a i n i n d i v i d u a l e lements , which f o r purposes

o f a n a l y s i s are b e s t considered s e p a r a t e l y , t h e y are i n t r i c a t e l y

i n t e r r e l a t e d i n terms o f t h e p r o p e r t i e s o f t h e r e s u l t i n g product.

(F indings o f F a c t 154-162).

chemical s tandards , q u a l i t y

Chemical Standards

Union Carbide's chemical s tandards which it claims have been

misappropriated by Viscofan p e r t a i n t o t h e composition and p r o p e r t i e s

o f i t s v i s c o s e and t h e a c i d bath used t o r e g e n e r a t e t h e v i s c o s e .

Viscofan claims t h a t Union Carbide is no l o n g e r using t h e s tandards

a l l e g e d t o have been s t o l e n , and t h a t V i s c o f a n independently developed

i t s own standards from p u b l i c l y a v a i l a b l e i n f o r m a t i o n , with t h e r e s u l t

t h a t i t s nominal v a l u e s f a l l o u t s i d e o f Union Carbide's ranges.

As presented on t h i s r e c o r d , chemical s tandards are a com-

plex and critical aspect o f t h e process o f manufacturing c e l l u l o s e

cas ings . There are many v a r i a b l e s t h a t w i l l affect the exact com-

p o s i t i o n o f t h e v i s c o s e and t h e a c i d b a t h t o a c h i e v e t h e d e s i r e d end

product , with t h e r e s u l t t h a t t h e development o f s tandards i s a

dynamic and evolv ing process . (F inding o f F a c t 159). Thus, consid-

e r a t i o n o f t h i s i s s u e on t h e s t r e n g t h o f t h e evidence o f record

26 6

i s complicated by the c o n s t a n t e v o l u t i o n o f the standards and absence

o r noncomparability of c e r t a i n v a r i a b l e s .

In t h e composition of v i s c o s e f o r c e l l u l o s e casings, t h e cellu-

(Finding o f Fact l o s e source io either wood pulp or cotton l i n t e r s .

160) . . (Pindingo of Fact 163, 164).

e '

(Finding of P a c t 165).

. (Finding8 o f F a c t 159, 182).

There is a ce:taia amgunt of infoxmation about t h e composit ion o f

v i s c o s e and a c i d bath p u b l i c l y a v a i l a b l e . I n 1946 and 1947, t h e

Office o f Mf l i tary Government for Germany published two reports on

ce l lophane and oauorga caringo u d e by Kalle in Germany.

i n d i c a t e d , with #om vadation, the standards used by K a l l e for i t s

v i s c o s e composition and a c i d b a t h , (Findings o f F a c t 171, 181).

S e v e r a l o f Union Catbide'o p a t e n t s 8180 reflect c e r t a i n v a l u e s for

t h e s e compos i t ions ,

These reports

(% RPP..204, 215; VBX 9, 13, 16, 17). I n

267

1977, Viacofan approached t h e Buckeye C e l l u l o s e Div is ion o f P r o c t e r

and Gamble about t h e purchase of c o t t o n l i n t e r s f o r c e l l u l o s e c a s i n g s .

Viscofan i n d i c a t e d i t s c u r r e n t v i s c o s e composit ion t o Buckeye, and

Buckeye recommended t h a t Viscofan lower i t s c e l l u l o s e content t o 7.5

percent and maintain t h e same v i s c o s i t y . (F inding o f F a c t 170).

There i s no i n d i c a t i o n t h a t Buckeye gave any recommendations about

o t h e r i n g r e d i e n t s i n t h e v i s c o s e composi t ion, o r made any sugges t ions

with r e s p e c t t o t h e a c i d bath.

c o n s u l t a n t , Raymond B a x t e r , proposed a v i s c o s e composit ion i n 1978.

(Finding o f F a c t 172).

F i n a l l y , Viscofan a l l e g e s t h a t i t s

Viscofan has provided two types o f f i g u r e s r e f l e c t i n g i t s v i s c o s e

and a c i d bath composit ions.

s tandards Viscofan has set for t h e s e composit ions.

168, 178).

standards and range o f t o l e r a n c e s t h a t Viscofan expects t o ach ieve i n

i t s manufacturing operat ions . The second set o f f i g u r e s r e p r e s e n t s

q u a r t e r l y high and low v a l u e s taken from a c t u a l production runs from

1978 t o 1983. (Findings o f F a c t 166, 167, 179, 180>. These latter

f i g u r e s do not p r e c i s e l y correspond t o Viscofan ' s actual s tandards , but

with t h e progress ion o f time they do i n d i c a t e a gradual r e d p c t i o n i n t h e

ranges o f t o l e r a n c e . ( C f . Finding o f F a c t 166 with 167 and Finding

o f F a c t 179 with 180).

One set o f f i g u r e s corresponds to t h e

(Findings o f Fact

These f i g u r e s presumably are an i n d i c a t i o n o f t h e b a s i c

- To t h e e x t e n t t h a t Viscofan ' s a c t u a l product ion

f i g u r e s are not an a c c u r a t e r e p r e s e n t a t i o n o f i t s s tandards , i t i s

inappropr ia te to compare them wi th Union Carb<de's.stgndards., F c o r Q i n g l y ,

f o r purposes o f t h i s analysis , , -Hscofan 's s tandards w i l l b e compared wi th

I % *

Union Carbide's s tandards , as well as o t h e r p u b l i c l y a v a i l a b l e information.

A c a r e f u l comparison o f Viscofan 's standards with t h e o t h e r

standards presented on t h i s record r e v e a l s a remarkably c l o s e approx-

imat ion t o Union Carbide's and Viscora ' s standards f o r both v i s c o s e

and a c i d bath.

report o f Kal le ' s opera t ions and t h e f igures a l l e g e d l y d i s c l o s e d by

I n g e n e r a l teras, t h e f igures d i s c l o s e d i n t h e A l l i e d

B a x t e r reflect t h e high and low ends o f t h e spectrum wi th r e s p e c t t o

t h e specific ingredients . (Findings o f F a c t 171, 172, 181). A com-

par ison of t h e s e f i g u r e s wi th Viscofan 's composit ions i n 1977 sugges ts

t h a t Viscofan was not adhering t o any o f t h e s e standards.

o f Fact 170, 177). Although Mr. Baxter ' s f i g u r e s may have a c c u r a t e l y

(Findings

4 r e f l e c t e d Union Carbide's composit ion a t one time, Union Carbide's

standards changed i n 1974. (Finding o f Fact 174).

. (Finding of F a c t 170).

The importance o f Union Carbide 's chemical s tandards f o r v i s c o s e

and a c i d bath lies i n t h e specific v a l u e s o f each i n g r e d i e n t and t h e i r

r e l a t i o n s h i p s , t o each o ther .

or Viscora has d i s c l o s e d i t s c u r r e n t chemical s tandards , and t h e s e

s tandards are d i f f e r e n t and o f t e n much more s p e c i f i c o r w i t h i n narrower

ranges than any information p u b l i c l y a v a i l a b l e . Union Carbide's s tandards

There i s no evidence t h a t Union Carbide

26 9

'have resulted i n a high q u a l i t y product , and i t i s acknowledged

by LeopcPldo Michelena t h a t chemical standards a r e an extremely

irnmrtant aspec t i n the ultimate q u a l i t y o f the cas ing.

of Fact 183 , 1 8 4 ) . Even i n a s i t u a t i o n i n which c e r t a i n elements o f

a t rade secret are i n the p u b l i c domain, a t r a d e secret can s t i l l

e x i s t i n a combination o f c h a r a c t e r i s t i c s or components when t h a t

combination i s not pubic ly d i s c l o s e d and a f f o r d s the complainant

a competi t ive advantage. Copper Rod, 206 U.S.P.Q., a t 158, and

cases c i t e d t h e r e i n ; Cybertek Computer Products , Inc . V. W h i t f i e l d ,

203 U.S.P.Q. a t 1024. I f i n d such t o be t h e s i t u a t i o n here.

(F indings

Viscofan 's productton f i g u r e s i n d i c a t e t h a t i t has had d i f f i c u l t y

I .achieving optimum v i s c o s e and a c i d bath composit ions.

urged by Viscofan t h a t i t s production f i g u r e s f a l l o u t s i d e o f Union

Carbide's ranges , thus i n d i c a t i n g t h a t Viscofan i s not using Union

Carbide's standards. This argument i s not p e r s u a s i v e , in view o f t h e

fact t h a t Viscofan 's a c t u a l product ion f i g u r e s f a l l o u t s i d e o f i t s own

s tandards , but i t s standards are uniformly very c l o s e t o those used by

Union Carbide. Due t o t h e number o f v a r i a b l e s t h a t affect optimum

v i s c o s e and a c i d bath s tandards , i t i s q u i t e l i k e l y t h a t Union Carbide's

standards may not serve Viscofan as well.

Never the less , knowledge o f those s tandards would provide Viscofan

with a base from which t o work, thereby reducing t h e amount of tr ial

and e r r o r required , and c o n f e r r i n g on Viscofan a d i s t i n c t b e n e f i t .

It has been

(Findings o f F a c t 159, 169).

270

Viscofan 's propos i t ion that Union Carbide i s no longer using i t s

chemical s tandards a l s o f a l l s wide o f the mark. There can be no doubt

t h a t - ..

I . In a d d i t i o n , f o r purposes o f i d e n t i f y i n g t h e domestic industry i n t h i s

i n v e s t i g a t i o n , i t appears t h a t the standards

were i n use a t t h e time Union Carbide f i l e d i t s complaint with t h i s

Commission. (F indings o f F a c t 158, 160). Bally/Midway Mfg. Co. V. U.S.

I n t e r n a t i o n a l Trade Commission, 219 U.S.P.Q. 97, 100 (C.A.F.C 1983).

F i n a l l y , t h e fact t h a t t h e temperature gauges on Viscora ' s a c i d

-baths are v i s i b l e during p l a n t t o u r s cannot be s a i d t o d i s c l o s e Union

Carbide's a c i d bath s tandards , s i n c e temperature is but one component o f

t h e combination. (RPF 223; VRX 5314). Copper Rod, 206 U.S.P.Q., a t

158.

In view o f t h e a r r a y o f p u b l i c l y a v a i l a b l e Standards , none o f which

Vlscofan appears t o be u s i n g , i t is not c r e d i b l e t h a t t h e c l o s e s i m i l a r i t y

between Viscofan's and Union Carbide's s tandards i s pure ly c o i n c i d e n t a l .

For t h e foregoing r e a s o n s , I f i n d t h a t Union Carbide's chemical s tandards

for v i s c o s e and a c i d bath c o n s t i t u t e v a l u a b l e p r o p r i e t a r y in format ion

which has g i v e n Union Carbide a compet i t ive advantage, and which has not

been p u b l i c l y d i s c l o s e d . The c l o s e s i m i l a r i t y of Viscofan 's h d s

creates a s t r o n g i n f e r e n c e t h a t Viscofan had access t o V i s c o r a ' s s tandards

through improper means, resuTt ing i n a b e n e f i t to Viscofan 's opera-

t i o n s . Rohm & Haas Co. V. Adco Chemical Co., 215 U.S.P.Q. 1081, 1085,

(3d C l r . 1982).

27 1

Quali ty Control Standards

Union Catbide 's q u a l i t y c o n t r o l s tandards are designed t o

measure t h e s t r e n g t h and performance c h a r a c t e r i s t i c s of t h e f i n i s h e d

c a s i n g as well as t o maintain uni formi ty o f c a s i n g s i z e . The s tan-

dards a t i s s u e are the c a s i n g bone dry gauge c e l l u l o s e c o n t e n t , which

measures c e l l u l o s e c o n t e n t f o r a g iven area o f c a s i n g , and a c a s i n g

s t r e t c h / b u r s t curve which measures c a s i n g performance under a n t i c i p a t e d

s t u f f i n g and process ing condi t ions .

standards f o r f l a t s t o c k manufacturing dimensions. (F indings o f F a c t

161, 162, 185, 186).

Union Carbide a l s o mainta ins

I These q u a l i t y c o n t r o l s tandards are no doubt important measures

o f product q u a l i t y , adherence t o which i s an e s s e n t i a l i n g r e d i e n t i n

Union Carbide's s u c c e s s wi th i t s casings.

t h i s in format ion , as a set o f standards f o r Union Carbide's Nojax

c a s i n g l i n e , i s anywhere p u b l i c l y d i s c l o s e d . Never the less , both

.. There i s no i n d i c a t i o n t h a t

c a s i n g bone dry gauge and s t r e t c h / b u r s t curve measurements car) b e

a s c e r t a i n e d from t h e f i n i s h e d product. I n a d d i t i o n , dry f la t width -

and wet f la t width measurements can be approximately measured from t h e

f i n i s h e d product. (Finding o f Fact 188).

C l e a r l y , t h e r e can be no t r a d e secret i n in format ion t h a t can be

der ived from t h e f inished product.

Chr is topher , 166 U.S.P.Q. 421, 424 ( 5 t h C i r . 1970), Henry Hope X-Ray

Products , Inc . V. Marron Carrell, Inc . , 216 U.S.P.Q. a t 765. The

record does not r e v e a l any ind_i_cation t h a t Viscofan e i t h e r had o r

E.I. DuPont de Nemours 61 CO. V.

used Union Carbide's q u a l i t y c o n t r o l s tandards beyond what could

be determined from testing t h e f i n i s h e d product. (F inding o f F a c t

188). It must be acknowledged t h a t tests performed on f i n i s h e d ,

27 2

s h i r r e d cas ing may not be as accurate as t h e tests run on newly manu-

fac tured f l a t s tock . (Finding of F a c t 187). I n a d d i t i o n , the i n f o r -

mation obtained i n t h i s f a s h i o n w i l l n o t y i e l d t h e composition of

t h e c a s i n g , o r a complete set of s tandards f o r d i f f e r e n t c a s i n g pro-

ducts .

Never the less , t o t h e e x t e n t t h a t Union Carbide may have a t r a d e

secret i n i t s q u a l i t y c o n t r o l s tandards beyond t h e in format ion t h a t c a n

b e a s c e r t a i n e d from t h e f i n i s h e d product , i t has not met t h e burden o f

e s t a b l i s h i n g t h a t Viscofan improperly obtained o r made use o f t h i s

secret.

Manufacturing S p e c i f i c a t i o n s #

Union Carbide's manufacturing s p e c i f i c a t i o n s relate t o i t s f la t

s t o c k manufacturing dimensions f o r each s i z e o f Nojax c a s i n g and a l l

e s t a b l i s h e d v a r i a n t s wi th in t h e size. (Finding of F a c t 162). The

equipment s p e c i f i c a t i o n s involved inc lude

. (Finding of F a c t 162).

Union Carbide and V i s c o r a c u r r e n t l y u t i l i z e

nozz le s i z e s , which are designated i n inches . Although Viscora ' s

nozz le sizes are g iven t h e same inch d e s i g n a t i o n s , t h e r e are some

s l i g h t v a r i a t i o n s i n t h e a c t u a l metric conversion.

F a c t 189-191).

Union Carbide's and Viacora'8. (Findings o f Fact 192, 193).

(Findings of

Viscofan's nozz le s i z e s are e s s e n t i a l l y t h e same as

273

, (Finding of F a c t 195).

. (Finding of Fact 196).

. (Finding o f F a c t

196).

, they are one o f many

i n t e r r e l a t e d f a c t o r s t h a t are e s t a b l i s h e d and must be maintained wi th in

t o l e r a n c e s t o ach ieve an a c c e p t a b l e f i n a l product. (Finding o f Fact

194). Thus, Union Carbide 's manufacturing standards must be considered

I as an i n t e g r a l part o f i t s system o f standards and s p e c i f i c a t i o n s , and

as such are found t o be 'of p r o p r i e t a r y value. Furthermore, t h e r e i s no

i n d i c a t i o n t h a t t h i s information has become a matter o f p u b l i c knowledge.

Viscofan 'e a s s e r t i o n t h a t Mr. Baxter knew Union Carbide's nozz le

sizes i s i n s u f f i c i e n t t o meet t h e burden of e s t a b l i s h i n g t h a t he a c t u a l l y

provided them t o Viscofan.

opinion r e l a t i n g t o Mr. B a x t e r , i t appears q u i t e u n l i k e l y t h a t M r .

For t h e reasons s t a t e d elsewhere i n t h i s

B a x t e r a c t u a l l y provided t h e amount of in format ion a t t r i b u t e d t o him

during t h e time of h i s v i s i t p r i o r t o Viscofan 's p i l o t p l a n t start-up.

(Finding of fact 134).

274

I n view o f t h e f o r e g o i n g , i t i s not clear on t h i s record how

Viscofan ' s nozz le dimensions have turned out t o be so c l o s e t o Viscora 's .

S i n c e t h e manufacturing s p e c i f i c a t i o n s are i n t e r r e l a t e d with chemical

s tandards , a c q u i s i t i o n o f both by Viscofan from Viscora would c l e a r l y

g i v e Viscofan a s u b s t a n t i a l commercial b e n e f i t . The near i d e n t i t y

between Viscora ' s and Viscofan 's s tandards and s p e c i f i c a t i o n s d iscussed

here in cannot be explained as occurr ing by co inc idence and have n o t been

adequately e s t a b l i s h e d as being due t o l e g i t m a t e sources o f information.

The i r r e s i s t i b l e weight o f p r o b a b i l i t y , i n t h e c ircumstances o f t h i s

case, l e a d s t o t h e conc lus ion t h a t Viacofan gained access t o Union

Carbide's s p e c i f i c a t i o n s by u n f a i r means.

Chemical Co., 215 U.S.P.Q., a t 1085.

Rohm & Haas Co. V. Adco

S h i r r i n g Related Trade S e c r e t s

4. O v e r a l l S h i r r i n g Machine c o n f i g u r a t i o n

The f o u r t h t r a d e secret which Union Carbide a l l e g e s has been mis-

appropriated by Viscofan relates t o i t s o v e r a l l s h i r r i n g machine con-

f igurat ion . This c o n f i g u r a t i o n p e r t a i n s t o t h e o v e r a l l process and

equipment by which Union Carbide conver ts f l a t s t o c k i n t o s h i r r e d c a s i n g

sticks. (Findings o f F a c t 187, 198). S e v e r a l elements are i d e n t i f i e d

by Union Carbide as c h a r a c t e r i z i n g i t s s h i r r i n g machine c o n f i g u r a t i o n ,

t h e combination o f which i s claimed t o be a t r a d e secret. Viscofan

responds t o t h e charge o f misappropriat ion wi th t h e a s s e r t i o n t h a t Union

Carbide's s h i r r i n g machine c o n f i g u r a t i o n has been e x t e n s i v e l y d i s c l o s e d

i n t h e patent l i t e r a t u r e , and f u r t h e r , t h a t Viscofan 's machine was

independently developed with t h e a s s i s t a n c e o f M r . F o n t , who had worked

at Viscora .

_ .

275

Union Carbide has i d e n t i f i e d ten items which c h a r a c t e r i z e i t s

o v e r a l l s h i r r i n g machine c o n f i g u r a t i o n . (UCX 468, p. 1). Three o f

these items are a l s o c lass i f ied as t r a d e secrets i n t h e i r own r i g h t ,

and will be considered i n d i v i d u a l l y , - i n f r a . It has been e s t a b l i s h e d

t h a t Viscora i n i t i a l l y obtained i t s s h i r r i n g machines from Union

Carbide, and has maintained them i n s u b s t a n t i a l l y t h e same f a s h i o n

as those i n use i n t h e United S t a t e s .

does not s e r i o u s l y d i s p u t e t h a t i t s o v e r a l l s h i r r i n g machine c o n f i g u r a t i o n

i s s u b s t a n t i a l l y t h e same as Viscora ' s and Union Carbide's.

o f F a c t 199-201). Thus, t h e threshold i n q u i r y i s whether o r t o what

e x t e n t t h i s c o n f i g u r a t i o n q u a l i f i e s as a t r a d e secret.

(Finding o f F a c t 206). Viscofan

(Findings

. * There are a l a r g e number of Union Carbide p a t e n t s d i s c l o s i n g many

aspects o f i t s s h i r r i n g technology , inc luding an e n t i r e shirring

machine conf igurat ion . (F inding o f F a c t 214). These patents d i s c l o s e

many elements o n l y c o n c e p t u a l l y , such t h a t a person s k i l l e d i n t h e art

o f assembling a machine only with t h e a i d o f t h e s e d i s c l o s u r e s would

undoubtedly u t i l i z e many d i f f e r e n t c o n s t r u c t i o n d e t a i l s from t h o s e

a c t u a l l y i n use by Union Carbide. Never the less , t o t h e e x t e n t t h a t

t h e s e p a t e n t s s c h e m a t i c a l l y d i s c l o s e such elements as:

i

, Union Carbide may n o t claim t h e s e concepts

as secrets. (Finding o f F a c t 214).

27 6

The exact combination of elements and t h e a c t u a l manner i n which

Union Carbide carries o u t i t s s h i r t i n g operat ions cannot b e s a i d t o be

a s c e r t a i n a b l e from t h e many patent d i s c l o s u r e s . T h e r e f o r e , i n s o f a r as

t h i s combination g i v e s Union Carbide a competi t ive advantage, i t i s a

conf igurat ion capable o f p r o t e c t i o n as a t r a d e secret. Syntex O p t h a l d c s ,

Inc . V. Novickly, 214 U.S.P.Q. a t 277.

The n e x t focus o f i n q u i r y must be on whether Union Carbide took

reasonable steps t o guard t h e s e c r e c y o f t h i s c la imed t r a d e secret.

T h i s a s s e r t e d t rade secret d i f f e r s i n nature from o t h e r s presented

i n t h i s i n v e s t i g a t i o n i n t h a t i t comprises a combination o f known

elements , and does not p e r t a i n t o p r e c i s e dimensions and machine

designs . As a r e s u l t , i t f a l l s o u t s i d e o f c o n s i d e r a t i o n of t h e manner

i n which Union Carbide p r o t e c t s i ts engineer ing drawings and standards

and speci f i c a t i o n s .

It i s Viscofan 's a s s e r t i o n t h a t i t r e c e i v e d a s s i s t a n c e from

M r . Font i n t h e design o f i t s s h i r r i n g machine. M r . Font was an

assembler and maintenance machanic working for a company which s e r v i c e s

V i s c o r a machines. (Findings o f F a c t 269, 270). I n t h e d e p o s i t i o n

conducted i n connect ion wi th t h i s i n v e s t i g a t i o n , Mr. Font i n d i c a t e d

t h a t his work a t V i s c o r a did not i n v o l v e t h e use o f t e c h n i c a l drawings

and t h a t he had not e v e r seen any V i s c o r a drawings.

Fact 271). In a d d i t i o n , Mr . Font t e s t i f i e d t h a t he had not made any

sugges t ions t o Viscofan 's engineers i n t h e design o f i t s s h i r r i n g

equipnent because he would not be a b l e to . (UCPX 117, p. 53).

(Finding o f

27 7

Although Mr. Font 's exper ience at Viscora was not s u c h as t o

a l low him t o provide technical e x p e r t i s e t o V i s c o f a n , this fact does

not d i s p o s e of the present i s s u e . Mr. Font 's work a t Viscora would

have enabled h i m t o become familiar wi th t h e assembly and set up o f

t h e s h i r r i n g machine, thereby making him aware o f that combination o f

e lements now claimed t o be a t r a d e s e c r e t . There i s no evidence on

t h i s record t h a t Mr. Font was made aware of any s e c r e c y o r conf ident -

i a l i t y with respect t o the c o n f i g u r a t i o n o f Viscora ' s s h i r r i n g machines,

nor is t h e r e any proof that Mr. Font was placed under any o b l i g a t i o n

not t o d i s c l o s e c o n f i d e n t i a l information. S i n c e M r . Font was not an

employee of V i s c o r a , and i n any event was a nonmanagerial l e v e l worker,

he was not o b l i g e d t o adhere t o a s e c r e c y agreement.

320)

(Finding o f F a c t 1

n

From t h e f o r e g o i n g , i t appears t h a t , w i t h respect t o t h i s p a r t i c u l a r

trade secret, Viscora d ld not t a k e any s t e p s t o preserve i t s s e c r e c y .

I n any e v e n t , a worker cannot be required t o erase h i s memory o r f o r f e i t

t h e knowledge and s k i l l s gained i n h i s employment when he commences work

wi th a competi tor . See Motorola , I n c . v. F a i r c h i l d Camera 61 Instrument

Corp. , 177 U.S.P.Q. 614,621-22 ( D . A r i z . 1973).

-

The n a t u r e o f t h i s a l l e g e d t r a d e secret i s such t h a t t h e combina-

t i o n o f e lements c la imed would be well w i t h i n t h e ambit of Hr. Font's

r e s p o n s i b i l i t i e s . I n t h e absence of any formal o b l i g a t i o n s o r even

awareness of t h e need t o mainta in s e c r e c y , i t cannot be s a i d t h a t M r .

Font 's communication o f h i s knowledge and exper ience t o V i s c o f a n i n

t h i s area was i n any way reprehens ib le . Accordingly , Union Carbide

has not met i t s burden of e s t a b l i s h i n g t h e e x i s t e n c e and misappro-

p r i a t i o n o f i t s c la imed t r a d e secret i n t h e o v e r a l l c o n f i g u r a t i o n of

i t s s h i r r i n g machine.

27 8

5. S h i r r i n g Head Assembly and L u b r i c a t i o n System

The f i f t h area of Union Carbie 's sausage c a s i n g technology i n which

misappropriation i s a l l e g e d p e r t a i n s t o Union Carbide's s h i r r i n g head

assembly and l u b r i c a t i o n system. The s p e c i f i c c h a r a c t e r i s t i c s t h a t

Union Carbide has i d e n t i f i e d t o e s t a b l i s h t h e s i m i l a r i t y between Union

Carbide's and Viscofan ' s s h i r r i n g heads i n c l u d e :

(F indings o f F a c t 218, 222, 223, 226, 230). It i s

acknowledged by Union Carbide t h a t items 2 , 3 , and 5 above are not

1. a s s e r t e d f o r t h e i r i n t r i n s i c p r o p r i e t a r y v a l u e , but r a t h e r as a r b i t r a r y

f e a t u r e s which s e r v e p r i n c i p a l l y as " f i n g e r p r i n t s " o f t h e a l l e g e d ..

misappropriat ion. (Union Carbide PRB, p. 24).

I n response t o t h e charge o f misappropr ia t ion , Viscofan asserts

t h a t Union Carbide's

specific elements found i n both Union Carbide's and Vlscofan's s h i r r i n g

heads but n o t d i s c l o s e d i n t h e , V i s c o f a n asserts t h a t i t

der ived t h e s e e lements on i t s own.

Union Carbide ' s

b a s i c s h i r r i n g head assembly as o f 1958.

was added by Union Carbide

(Finding o f F a c t 216). The

, and thus i s - n o t d i s c l o s e d i n it. This a d d i t i o n

279

was a r e l a t i v e l y simple innovat ion , but i t solved a problem of

. (Findings

o f F a c t 217-219). Viscofan 's s h i r r i n g heads have an

s u b s t a n t i a l l y i d e n t i c a l t o Union Carbide's . (Finding of F a c t

220) .

. (Findings o f F a c t 2 2 1 , 222).

S i m i l a r l y , t h e nominal head s e t t i n g u t i l i z e d by V i s c o f a n , although not

e x a c t l y the same as Union Carb ide ' s , is c l o s e r t o Union Carbide's

. (Findings o f F a c t

223-225).

F i n a l l y , t h e alignment f i x t u r e used t o set up t h e s h i r r i n g r o l l s

c u r r e n t l y employed by Union Carbide i s d i f f e r e n t

. (Findings o f F a c t 226-228). Viscofan ' s alignment

f i x t u r e appears t o be somewhat d i f f e r e n t than both Union Carbide's

. (Finding of F a c t 229).

O f t h e foregoing e lements , on ly

appear t o be f e a t u r e s o f a propr ie tary

nature t h a t provide Union Carbide with a compet i t ive advantage.

None o f t h e s e f e a t u r e s are p u b l i c l y d i s c l o s e d , and Union Carbide

28 0

and Viscora have taken adequate precaut ions t o maintain t h e secrecy

I .

of t h e i r c o n f i d e n t i a l drawings w h i c h d e t a i l t h e s e elements. (Findings

of F a c t 124, 313-319). Viscofan ' s a s s e r t i o n t h a t these elements can be

viewed i n a plant tour i s not c r s d i b l e . The not ion t h a t an unprac-

t i c e d eye could d i s c e r n t h e d e t a i l s o f a complex machine whi le i t i s

i n o p e r a t i o n , p a r t i c u l a r l y when t h e guards on t h e machines would

obscure t h e s e d e t a i l s when they were i n place, f i n d s no support on

t h i s record. (Findings of F a c t 359-362). See Copper Rod, 206 U.S.P.Q.

a t 158. I n a d d i t i o n , t h e r e i s no claim t h a t Viscofan a c t u a l l y obta ined

t h i s information by means o f a p lant tour .

Novickly, 214 U.S.P.Q. 272.

See Syntax Opthalmics V.

I n support o f the propos i t ion o f independent development, Viscofan

s u g g e s t s t h a t t h e s e elements are a matter o f c h o i c e or l o g i c , and

t h a t it may u t i l i z e a l t e r n a t i v e means to accomplish t h e same thing i n

t h e future . (RPF 315-317, 320). The fact t h a t t h e s e d e t a i l s are not

publ ished, taken together wi th Viscofan 's admission t h a t s imple a l t e r n a t i v e s

are a v a i l a b l e , makes doubly myster ious t h e remarkable s i m i l a r i t y between

Viscofan 's and Union Carbide's assembl ies i n both s i g n i f i c a n t and

i n s i g n i f i c a n t d e t a i l s and g i v e s t h e l i e to the a s s e r t i o n o f independent

development. The a c u i t y o f h inds ight makes i t e a s y t o l a b e l a development

logical or simple after i t has proven s u c c e s s f u l .

V. Rothlein, 143 U.S.P.Q. 173.

- See Sperry Rand Corp.

With r e s p e c t to t h i s t r a d e secret, t h e evidence o f d e t a i l e d copying

by Viscofan is persuasive. The p r o t e c t e d secret s t a t u s o f t h e s e e lements ,

p r o p r i e t a r y t o Union Carbide, and t h e absence o f any e s t a b l i s h e d l e g i t i m a t e

28 1

means o f access by V i s c o f a n , compel t h e c o n c l u s i o n t h a t t h i s information was

misappropriated by unfair means. I r r e s p e c t i v e o f t h e supposed s i m p l i c i t y o r

unimportance o f t h e s e elements, t h e i r proven s u c c e s s i n t h e hands o f Union

Carbide e l i m i n a t e d r i s k and t h e need f o r experimentat ion by Viscofan.

However, t h e r e i s i n s u f f i c i e n t proof on t h i s record t h a t Viscofan is

u t i l i z i n g Union Carbide's . (Finding o f F a c t 229 ). I n

a d d i t i o n , t h e apparent commercial a v a i l a b i l i t y o f t h e g e a r a t i s s u e , t o g e t h e r

with t h e r e l a t i v e unimportance of t h e number o f t e e t h prevents t h e drawing o f

any adverse i n f e r e n c e s o f misappropriat ion from t h e s i m l l a r i t y between Union

Carbide's and V i s c o f a n ' s g e a r s . (F indings o f Fact 230, 231) .

6. E x t e r n a l Configurat ion and Construct ion o f S h i r r i n g Mandrel

-. As i t s s i x t h t r a d e secret a l l e g e d t o have been misappropriated by V i s c o f a n ,

Union Carbide claims t h e e x t e r n a l c o n f i g u r a t i o n and c o n s t r u c t i o n o f i t s s h i r r i n g

mandrel. The mandrel a t i s s u e i s a mandrel which is a s s o c i -

a ted with t h e s h i r r i n g head i n such f a s h i o n as t o s e r v e as a form f o r t h e c a s i n g

and t o maintain t h e c a s i n g ' s c e n t r a l bore as i t is s h i r r e d . (F indings o f F a c t

200-205, 212, 213, 232) . The many f u n c t i o n s performed by t h e s h i r r i n g mandrel

which are e s s e n t i a l t o t h e s h i r r i n g p r o c e s s make it e v i d e n t t h a t v i r t u a l l y

none o f t h e d e t a i l s o f c o n s t r u c t i o n are superf luous. ( Id.) . -

Viscofan 's e x p l a n a t i o n o f t h e high d e g r e e o f s i m i l a r i t y between i t s s h i r r i n g

mandrel and Union Carbide's i s t h a t Union Carbide has d i s c l o s e d i t s mandrel

c o n f i g u r a t i o n i n t h e p a t e n t l i t e r a t u r e , and t h a t Mr. Font provided a s s i s t a n c e i n

t h e design of Viscofan's mandrel. I n a d d i t i o n , V i s c o f a n p o i n t s t o t h e d i f f e r e n c e s

of i t s mandrel from Union Carbide's as proof o f independent development.

28 2

i n U.S. L e t t e r s Patent 2,983,949 t o Matecki ('949 patent).

T h i s patent d i s c l o s e s a two-pass f l o a t i n g mandrel which i s held i n p o s i t i o n

by two r e l e a s a b l e clamps w i t h the passageways through t h e i n t e r i o r o f the

mandrel t o the nozz le being connected at t h e No. 1 clamp. These i n t e r n a l

passages supply a i r and o i l t o the nozz le t o i n f l a t e and l u b r i c a t e t h e

interior o f t h e c a s i n g immediately before being rece ived by t h e s h i r r i n g

wheels. (Finding o f F a c t 244). The '949 patent f u r t h e r d i s c l o s e s t h a t t h e

diameter o f the s h i r r i n g mandrel is s l i g h t l y reduced fo l lowing t h e s h i r r i n g

zone t o fac i l i tate movement o f t h e s h i r r i n g st ick along t h e mandrel.

(Finding o f F a c t 244).

have been dedicated t o t h e publ ic .

Thus, t h e foregoing concepts must be found t o

I .

Union Carbide points t o many s t r u c t u r a l and dimensional s i m i l a r i t i e s 6

between t h e mandrel used a t Viscora and Viscofan ' s mandrel

(Findings o f F a c t 233-239) . - - - .

(Finding o f Fact 240) . Union Carbide a l s o p o i n t s t o t h e i d e n t i t y o f a mult i tude o f c o n s t r u c t i o n

d e t a i l s o f i t s and Viscofan ' s mandrels , from

. (Findings

of F a c t 239, 242). I n a d d i t i o n , t h e o v e r a l l l e n g t h o f the r e s p e c t i v e mandrels ,

283

which i s an a r b i t r a r y and undisc losed f i g u r e , i s a l s o e s s e n t i a l l y

i d e n t i c a l . (F indings of F a c t 245-247). These detai ls go well be-

yond t h e patent d i s c l o s u r e and t h e r e i s no s u b s t a n t i a l proof t h a t

they were otherwise p u b l i c l y a v a i l a b l e . The many important funct ions

performed by t h e s h i r r i n g mandrel make it apparent t h a t t h e combin-

a t i o n o f s t r u c t u r a l detai ls developed by Union Carbide are c l o s e l y

i n t e r r e l a t e d and perform i n c o n c e r t t o ach ieve a high q u a l i t y f i n i s h e d

product , thus g i v i n g Union Carbide a d i s t i n c t compet i t ive - . advantage.

Viscofan 's a s s e r t i o n t h a t any t r a d e secret t h a t Union Carbide might

have has been l o s t because t h e mandrel i s v i s i b l e on p l a n t t o u r s i s -without

merit. Under any circumstances, masks t h e

. Furthermore, when t h e mandrel i s i n p l a c e during o p e r a t i o n , t h e

i s obscured by t h e s h i r r i n g head. It i s e n t i r e l y inconce ivable

t h a t even a h i g h l y t r a i n e d eye could d i s c e r n t h e d e t a i l s which comprise

t h i s t r a d e secret i n t h e course o f a p l a n t tour .

a t 158.

Copper Rod, 206 U.S.P.Q.

I n view o f t h e remarkable exactness of d e t a i l between Viscera's

and Viscofan ' s mandrels , inc luding many a r b i t r a r y d e t a i l s , V iscofan

bears a heavy burden o f persuasion t h a t i t s mandrel design was t h e r e s u l t

o f Independent development. The a s s e r t i o n t h a t t h e necessary information

came from M r . Font doe$ not meet t h a t burden.

The evidence makes clear t h a t M r . Font 's r e s p o n s i b i l i t i e s at Viscora

extended t o assembling and maintaining s h i r r i n g machines.

u t i l i z e Viscora drawings, and d M not des ign parts, but r a t h e r assembled

f i n i s h e d p a r t s . (Findings o f F a c t 270, 271; UCPX 117, pp. 57-58). He d i d

He did not

284

not have an engineer ing background, and d i d not cons ider 'himself capable of

p a r t i c i p a t i n g i n t h e design o f a s h i r r i n g machine. (UCPX 117, pp. 23, 26,

53).

measurements f rom Viscora 's equipment, he was unable t o remember which ,

Although Mr. Font thought he might have provided Viscofan with some

ones , nor could h e remember measurements accurate ly . ( Id . a t 53-54). I n

view o f t h e apparent ly s c a n t information t h a t M r . Font was a b l e t o provide,

-

and t h e s t rong evidence t h a t Viscofan had access t o much more a c c u r a t e and

d e t a i l e d information about Vlscora ' s mandrel , i t i s not c r e d i b l e t h a t

Viscofan independently designed i t s mandrel with only t h e did o f M r . Font 's

memory . There being no o t h e r apparent and l e g i t i m a t e source f o r Viscofan 's

a c q u i s i t i o n o f Viscora 's s h i r r i n g mandrel technoiogy, t h e conc lus ion

i s inescapable t h a t t h i s information was obtained through misappropria-

t i o n by u n f a i r means. There i s l i t t l e ques t ion t h a t access t o Union ~

Carbide's h i g h l y engineered mandrel reduced t h e amount o f t r i a l and

e r r o r t h a t Viscofan would have had t o engage i n t o develop I ts own mandrel

o f equal performance.

For the foregoing r e a s o n s , I f i n d t h a t t h e e x t e r n a l c o n s t r u c t i o n

and c o n f i g u r a t i o n of Union Carbide's s h i r r i n g mandrel comprises va luable

p r o p r i e t a r y in format ion which Union Carbide took reasonable s t e p s t o

mainta in i n conf idence , and t h a t t h i s t r a d e secret was misappropriated by

Viscofan and has been used t o i t s b e n e f i t .

28 5

7. S h i r r i n g Mandrel Internal Spray System

The f i n a l t r a d e secret a l l e g e d by Union Carbide t o have been

misappropriated by Vlscofan i s t h e i n t e r n a l spray system o f Union

Carbfde ' s mandrel. Union Carbide developed t h e

. (Findings of Fact 248-251).

It is e s t a b l i s h e d on t h e record t h a t t h e patent l i t e r a t u r e

d i s c l o s e s a two-pass mandrel, 8 . . . (Finding

o f F a c t 250). Viscofan argues t h a t

.. Thus, Viscofan ' s mandrel, which i s

f u n c t i o n a l l y t h e same as Union Carbide 's , i s a l l e g e d t o b e t h e product

o f independent development. (F indings o f Fact 259-260)

I n Union Carbide's and Viscofan 's

(F inding o f Fact 253).

28 6

. (WF 378) .

. (Findings o f Fact 254, 2 5 5 , 260).

Another important f e a t u r e

(Findings of Fact 256-258)

(Finding of Fact 256). Viscofan u t i l i z e s an e s s e n t i a l l y i d e n t i c a l

. (Findings o f Fact 261-263).

i s a simple and Viscofan’s claim t h a t a

obvious expedient

does not explain why i t s mandrel i s so

nearly identical t o Union Carbide’s. It i s noted i n t h i s respect

287

t h a t Teepak

u t i l i z e s a d i f f e r e n t c o n f i g u r a t i o n f o r accom-

p l i s h i n g t h i s p r o c e s s . (Finding o f F a c t 252) . Thus, t h e r e is c l e a r l y

more than one way t o c a r r y o u t t h i s f u n c t i o n .

Union Carbide 's d e s i g n o f i t s

i s n o t p u b l i c l y d i s c l o s e d , and t h e t e c h n i c a l drawings which r e v e a l

i t s s t r u c t u r a l d e t a i l s are a p p r o p r i a t e l y maintained i n c o n f i d e n c e by both

Union Carbide and V i s c o r a , (F indings o f Fact 124, 313-319).

. (Finding o f

F a c t 256) .

The r e l a t i v e s i m p l i c i t y o f c a r r y i n g o u t t h e a c t u a l m o d i f i c a t i o n s

does not suggest t h a t t h e o r i g i n a l design o f f u n c t i o n a l

requirements was e q u a l l y simple. It i s h i g h l y u n l i k e l y t h a t a n o t h e r

e n g i n e e r , f a c e d w i t h r e s o l v i n g t h e problem solved by 9

but without b e n e f i t o f Union Carbide's t e c h n i q u e s , would a r r i v e at an

i d e n t i c a l s o l u t i o n .

With r e s p e c t t o t h e used by Union Carbide t o

, although i t i s undoubtedly a cr i t ica l component i n t h e

p r o c e s s , i t a l s o appears t o be a commercially a v a i l a b l e , u n a l t e r e d . (Findings o f F a c t 255, 260).

o f cannot be regarded as an i n v a s i o n o f Union Carbide's p r o p r i e t a r y

Accordingly, V i s c o f a n ' s u s e o f t h e same type

i n t e r e s t .

288

Based on t h e evidence p e r t a i n i n g t o t h i s i s s u e , I conclude

t h a t the design and f u n c t i o n o f Union Carbide's i n t e r n a l spray

sys tem comprises v a l u a b l e , undisc losed ,

propr ie tary information. The remarkable s i m i l a r i t y o f Viscofan ' s

t o t h a t used by V i s c o r a and Union Carbide b e l i e s

any claim o f independent development, p a r t i c u l a r l y in view o f t h e

d i f f e r e n t approach t o the same problem developed by Teepak.

absence of any convincing showing t h a t Viscofan had l e g i t i m a t e access

t o Union Carbide's technology i n t h i s area, t h e conc lus ion i s inescap-

a b l e t h a t Viscofan obtained t h i s information by unauthorized and

I n t h e

u n f a i r means.

Accordingly , I f i n d t h a t Union Carbide has a t r a d e secret

i n t h e i n t e r n a l spray system , which secret

has been misappropriated by Viscofan.

289

- C o n f i d e n t i a l i t y of Union Carbide 's Trade S e c r e t s

In response t o Union Carbide 's claims of misappropr ia t ion , Viscofan has

s t r e s s e d t h e absence of c o n f i d e n t i a l i t y agreements between V i s c o r a and i t s

n o m a n a g e r i a l employees and o u t s i d e workers , notab ly Jean DuBois and

Bartolome Font. The proper scope o f t h i s d e f e n s e , wi th in t h e c o n t e x t of

t h i s i n v e s t i g a t i o n t o g e t h e r with t h e l e g a l a u t h o r i t y r e l i e d on by V i s c o f a n ,

must be placed i n perspec t ive .

As noted s u p r a , a t 244, one o f t h e e lements o f proof o f misappropr ia t ion

o f a t r a d e secret is t h a t t h e secret in format ion was d i s c l o s e d t o respondent

whi le I n a c o n f i d e n t i a l r e l a t i o n s h i p with complainant - o r t h a t respondent

took t h e t r a d e secret by u n f a i r means. Copper Rod, 206 U.S.P.Q. , a t

156. ,

The v a s t m a j o r i t y o f l e g a l a u t h o r i t y presented on t h i s i s s u e concerns

s i t u a t i o n s i n which in format ion was d i s c l o s e d by an employer t o an employee

whi le t h a t employee was i n a c o n f i d e n t i a l r e l a t i o n s h i p with h i s employer.

These cases are c h a r a c t e r i z e d by f a c t u a l s i t u a t i o n s involv ing h igh l e v e l

employees who e i t h e r developed t h e t r a d e secret a t i s s u e themselves o r had

unquestioned access t o t h e secret in format ion I n t h e normal c o u r s e o f

t h e i r employment. Frequent ly , t h e s e cases a lso i n v o l v e secrecy, c o n f i d e n t i a l i t y

o r noncompetition agreements.

The facts of t h e p r e s e n t i n v e s t i g a t i o n are d i s t i n g u i s h a b l e from t h e

foregoing s c e n a r i o i n many important respects. It is e s t a b l i s h e d t h a t

c e r t a i n employees and workers a t V i s c o r a , n o t a b l y Messrs. Font and DuBoIs

290

were subsequent ly h i red by Viscofan and have u t i l i z e d their experience

gained a t V i s c o r a i n t h e i r work a t Viscofan. (F indings o f F a c t 269 270,

278, 284-286). The exact scope o f t h e i r c o n t r i b u t i o n t o Viscofan i s f a r

from clear. Nonetheless , i t i s not s e r i o u s l y disputed t h a t both Font and

DuBois were nonmanagerial employees who were not required t o s i g n s e c r e c y

agreements with Viscora . (F indings o f F a c t 271, 284, 320) .

These facts do not undermine Union Carbide's c la ims o f secrecy .

It i s not a l l e g e d by Union Carbide t h a t e i t h e r Font o r DuBois breached

any o b l i g a t i o n s o f c o n f i d e n t i a l i t y they may have owed t o Viscora by

going t o work f o r Viscofan and u t i l i z i n g t h e knowledge and exper ience

gained i n t h e course o f t h e i r work f o r Viscora . This they had a perfect

r i g h t t o do. Future P l a s t i c s , Inc . V. Ware Shoals P l a s t i c s , Inc . , 173

U.S.P.Q. 733, 739 (D.S.C. 1972). Rather , what i s a l l e g e d i s t h a t s e v e r a l

i n d i v i d u a l s engaged i n a s p e c i e s o f i n d u s t r i a l espionage t o a c q u i r e Viscora ' s

t e c h n i c a l information.

c e r t a i n o f V i s c o r a ' s workers were not under any formal o b l i g a t i o n t o observe

s e c r e c y they had l i c e n c e t o remove documents and p a r t s from Viscora ' s p lant .

It can hardly b e suggested by Viscofan t h a t because

The test imony o f both DuBois and Font i s e n l i g h t e n i n g i n t h i s r e s p e c t .

Both men t e s t i f i e d t h a t i n t h e i r work they had no o c c a s i o n t o use t e c h n i c a l

drawings, and would not be capable o f designing e x t r u s i o n o r s h i r r i n g equip-

ment. (F indings o f F a c t 271, 284, 286; UCPX 117, p. 53) . Font claimed

never t o have seen any Viscora drawings; DuBois claimed h e d i d not know

where they were kept a t Viscora . (F indings o f F a c t 271, 284) . Font

suggested t h a t he may have provided a few of Viscora 's dimensions t o

29 1

V i s c o f a n , but he couldn' t remember which ones , and d idn ' t th ink h e could

remember the dimensions a c c u r a t e l y . (UCPX 117, pp. 53-54). DuBois des-

c r i b e d the types of sugges t ions f o r improvements t h a t he had made at

V i s c o f a n , none o f which r e l a t e d t o t h e t r a d e secrets at i s s u e .

o f F a c t 286) .

(Finding

The test imony of both DuBois and F o n t , taken together wi th t h e i r

educat iona l background and employment exper ience , suggests t h a t wi th in t h e

l e g i t i m a t e scope o f t h e i r employment with Viscora they would not have had

access t o o r knowledge about t h e claimed t r a d e secrets. I n t h i s event, i t

was not a breach of s e c u r i t y f o r V i s c o r a t o f a i l t o o b t a i n s e c r e c y agreements

from employees who did not have d i r e c t access t o t rade secrets.

,. To t h e e x t e n t t h a t Viscofan claims Font and DuBois as t h e sources

o f i t s i n f o r m a t i o n , much o f t h e in format ion must have been derived o u t s i d e

the l e g i t i m a t e scope of t h e i r employment. This i n f e r e n c e i s strengthened

by t h e improbable test imony g iven by both Font when quest ioned about h i s

purchase o f a Canon photocopier , and DuBois when asked t o e x p l a i n t h e

payments r e c e i v e d from Viscofan b e f o r e he commenced employment t h e r e .

(F indings o f F a c t 273-277, 279-283).

The n o t i o n t h a t employment w i t h i n V i s c o r a ' s f a c i l i t i e s unburdened

by a s e c r e c y agreement would g i v e free r e i g n t o remove drawings and

equipment t o send t o a primary compet i tor i s untenable.

devot ion t o free wheeling i n d u s t r i a l compet i t ion must not f o r c e US

i n t o a c c e p t i n g t h e law o f t h e j u n g l e as t h e standard o f m o r a l i t y

expected i n our commercial r e l a t i o n s . " E. I. DuPont de Nemours & Co.

V. Chr is topher , 166 U.S.P.Q. a t 124. T h e r e f o r e , I f i n d t h a t V i s c o r a

took reasonable precaut ions t o preserve t h e s e c r e c y o f i t s technology ,

and could not have foreseen o r prevented t h e espionage t h a t occurred.

29 2

"[Olur

Union Carbide/Matarazzo J o i n t Venture

As a defense t o Union Carbide's charge o f t rade secret misappro-

p r i a t i o n , Viscofan asserts t h a t Union Carbide l o s t t h e s e c r e c y o f i t s

a l l e g e d t rade secrets by v i r t u e o f i t s failure t o take a c t i o n a g a i n s t

f t s B r a z i l i a n j o i n t v e n t u r e r , Matarazzo, and a former employee of the

j o i n t v e n t u r e , Raymond Baxter. (Viscofan PB, pp. 26-27). The Commission

i n v e s t i g a t i v e a t t o r n e y a g r e e s with Viscofan on t h i s point . (Commission

I n v e s t i g a t i v e Attorney PB, pp. 16-18). An examination o f t h e facts r e l a t i n g

t o t h i s i s s u e does not compel t h e conc lus ion o f loss o f s e c r e c y urged by

Viscof an.

Union Carbide entered i n t o a j o i n t venture with a B r a z i l i a n company,

Matarazzo, i n 1957, and formed a company e n t i t l e d Visking do B r a s i l (Visking).

Under t h i s agreement, Union Carbide provided c e r t a i n o f i t s s k i n l e s s

c a s i n g technology and know-how t o Visking do B r a s i l . I n i t i a l l y , Visking

s h i r r e d f i n i s h e d c a s i n g s manufactured by Union Carbide, but as t h e market

developed, Visking acquired a d d i t i o n a l technology from Union Carbide, and

began t o manufacture c a s i n g s as well. M r . Raymond Baxter became d i r e c t o r

o f Visking i n about 1969. (Findings o f F a c t 330-334).

The j o i n t venture agreement provided f o r an exchange o f technology f o r

a per iod of f i f t e e n years . I n a d d i t i o n , t h e agreement contained a c l a u s e

r e q u i r i n g a l l p a r t i e s t o maintain a l l technology , know-how and p r o p r i e t a r y

in format ion c o n f i d e n t i a l , and t o r e q u i r e t h e i r o f f i c e r s , d i r e c t o r s and

key personnel t o agree t o do t h e same. (Findings o f F a c t 331, 332). During t h e

29 3

1960 ' s , Union Carbide 's e q u i t y i n Visking diminished, I n about 1976,

Matarazzo entered i n t o a j o i n t venture with a German company, Hoechst ,

c a l l e d T r i f i c e l . Union Carbide was concerned t h a t Matarazzo had t r a n s -

f e r r e d t h e assets o f Visk ing t o T r i f i c e l , and reminded Matarazzo o f t h e

cont inuing o b l i g a t i o n t o p r o t e c t t h e c o n f i d e n t i a l i t y o f Visking 's techno-

logy. M r . B a x t e r ' s employment continued w i t h T r i f i c e l . (F indings o f

F a c t 335, 339-343). I n 1978, Mr. B a x t e r , having l e f t T r i f i c e l and s e t t l e d

i n P o r t u g a l , o f f e r e d h i s s e r v i c e s as a c o n s u l t a n t i n skinless c a s i n g s

technology t o Viscofan . Viscofan entered i n t o a one-year c o n t r a c t wi th Mr.

B a x t e r beginning i n March 1978, during which tlme Mr. Baxter v i s i t e d

Viscofan at least i n April-May 1978 t o assist with t h e start up of t h e

Caseda p lant . (F indings o f Fact 346-348). 6

Union Carbide does not a l l e g e i n t h i s i n v e s t i g a t i o n t h a t Mr. Baxter

misappropriated t r a d e secrets from V i s k i n g , a l though i t was b e l i e v e d t h a t

he had done so. (Finding o f F a c t 344). Moreover, Union Carbide does not

suggest t h a t V i s c o f a n acquired any o f t h e t r a d e secrets a t i s s u e from Mr.

Baxter . I n view o f t h e fact t h a t c e r t a i n technology was never t r a n s f e r r e d

t o Visking, i t appears t h a t some o f t h e t r a d e secrets at i s s u e could not

have been divulged t o Viscofan by Mr. Baxter .

The record does not c l e a r l y e s t a b l i s h t h e f u l l e x t e n t o f t e c h n i c a l know-how

r e c e i v e d from M r . B a x t e r by Viscofan.

(F indings o f F a c t 336-338).

However, t h e i s s u e praposed by Viscofan I s whether Union Carbide l o s t

a l l claim t o secrecy by i t s f a i l u r e t o pursue M r . B a x t e r , d r r e s p e c t i v e o f

whether V i s c o f a n a c t u a l l y r e c e i v e d any of t h e technology i n q u e s t i o n from

Mr. Baxter .

29 4

On t h e b a s i s o f t h e present r e c o r d , I t Is unnecessary and unwarranted

t o attempt t o r e s o l v e t h e l e g a l s tatus o f Union Carbide's r e l a t i o n s with

Matarazzo and Mr. Baxter . The e x p l i c i t terms o f the j o i n t venture agreement

imposed a c o n f i d e n t i a l i t y requirement on a l l p a r t i e s t o t h e agreement,

i n c l u d i n g o f f i c e r s , d i r e c t o r s and key employees. Mr. B a x t e r ' s s t a t u s as

d i r e c t o r o f Visking would have made him s u b j e c t t o t h i s c o n f i d e n t i a l i t y

p r o v i s i o n , and correspondence t r a n s m i t t i n g c e r t a i n technology t o him

i n d i c a t e s t h a t he was made aware o f t h i s requirement. (F indings of F a c t

332, 334). C e r t a i n l y Union Carbide f e l t t h a t t h e c o n f i d e n t i a l i t y p r o v i s i o n

o f t h e agreement extended beyond t h e term of t h e f i f t e e n - y e a r exchange o f

technology, and n o t i f i e d Matarazzo o f t h i s b e l i e f . (F indings o f F a c t 344,

345). 1.

- ' To t h e e x t e n t t h a t t h e t r a d e secrets at i s s u e i n t h i s i n v e s t i g a t i o n

were e i t h e r not known by M r . B a x t e r o r n o t communicated by him t o Viscofan,

i t i s impossible t o conclude t h a t Union Carbide f o r f e i t e d any s e c r e c y by

v i r t u e o f i t s r e l a t i o n s with Matarazzo. The l i c e n s i n g o f technology,

i n i t s e l f , d o e s not d e s t r o y t h e s e c r e c y o f t r a d e secrets . Milgrim, supra 55

2.04 at 2-34, 5.03[7] at 5-80 - 5-81. Contrary t o Viscofan 's i m p l i c a t i o n

t h a t Union Carbide f r e e l y t r a n s f e r r e d technology t o Matarazzo without

c o n t r a c t u a l l y agreed c o n f i d e n t i a l i t y , i t i s clear t h a t Union Carbide not

o n l y o b t a i n e d an agreement from Matarazzo t o preserve s e c r e c y , b u t t h a t it

c o n t i n u a l l y reminded Matarazzo t h a t a l l technology t r a n s f e r r e d was under

t h e c o n f i d e n t i a l i t y requirement. (F indings o f Fact 332, 334, 341-345).

The terms o f t h e agreement do n o t support V i s c o f a n ' s a s s e r t i o n t h a t t h e

c o n f i d e n t i a l i t y requirement ended w i t h t h e term o f t h e exchange of technology.

29 5

(Finding o f Fac t 332). Union Carb ide ’s reasons f o r not taking a c t i o n

a g a i n s t Mr. Baxter a r e not f u l l y explained on t h i s record. Nevertheless ,

the f a c t s i n evidence do i n d i c a t e t h a t Union Carbide contemplated taking

a c t i o n and made i t s p o s i t i o n , both with respect t o Trif icel and Mr. Baxter,

clear t o Matarazzo. (F indings o f F a c t 343, 344).

On t h e b a s i s o f the foregoing , I conclude t h a t Union Carbide did not

f o r f e i t t h e claim t o s e c r e c y o f the propr ie tary in format ion t ransmit ted t o

Visking do B r a s i l by v i r t u e o f i t s r e l a t i o n s with Matarazzo and M r . Baxter .

Union Carbide/Teepak L icens ing Agreement

Viscofan asserts t h a t Union Carbide l o s t t h e claim t o s e c r e c y of i t s

1 know how by v i r t u e o f t h e e x p i r a t i o n o f t h e Second 1967 Agreement between ..

Teepak and Union Carbide. The record does not c l e a r l y i n d i c a t e e x a c t l y

what know-how was t r a n s f e r r e d by Union Carbide t o Teepak under t h i s agreement.

N e v e r t h e l e s s , i t appears t h a t t h e know-how exchange was not f u l l y consummated

and t h a t , i n any e v e n t , Teepak d i d not use much o f t h e know-how i t rece ived .

I n a d d i t i o n , Teepak has taken s t e p s t o preserve t h e c o n f i d e n t i a l i t y o f t h e

technology rece ived . (F indings of F a c t 349, 350). Accordingly , T. f ind no

support f o r t h e propos i t ion t h a t Union Carbide has f o r f e i t e d any claims t o

s e c r e c y on account o f t h i s agreement.

Leve l o f Technology

I n support o f i t s claim of independent development o f i t s technology ,

Viscofan contends t h a t sausage c a s i n g technology Is not p a r t i c u l a r l y s o p h i s t -

i c a t e d , and t h a t s u c c e s s f u l o p e r a t i o n o f a c a s i n g manufacturing o p e r a t i o n

does not r e q u i r e a high l e v e l o f s k i l l or exper ience . I r r e s p e c t i v e of t h e

29 6

the r e l a t i v e s o p h i s t i c a t i o n o f t h i s technology, f o r w h i c h t h i s record

provides no basis for comparison, i t 'is clear t h a t the manufacture o f

c e l l u l o s e sausage casings has evolved i n t o a r e l a t i v e l y high l e v e l of

i n d u s t r i a l i z a t i o n .

There is ample ) . I

support on t h i s record f o r t h e propos i t ion t h a t t h e

development and o p e r a t i o n o f a manufacturing p l a n t on t h e scale o f t h e

o p e r a t i o n s o f the p a r t i e s t o t h i s i n v e s t i g a t i o n r e q u i r e e x t e n s i v e planning, i

development, preparat ion and organizat ion . (F inding o f F a c t 264). The

e f for t s expended by Teepak and Union Carbide o v e r t h e y e a r s have r e s u l t e d i n

e v e r i n c r e a s i n g speed o f o p e r a t i o n , c o n s t a n t improvement in product q u a l i t y ,

. ,

and o v e r a l l e f f i c i e n c y and r e p r o d u c e a b i l i t y o f manufacturing operat ions .

These r e s u l t s are accomplished by an e x t e n s i v e and i n t r i c a t e system of

drawings, s tandards and s p e c i f i c a t i o n s , which are cons idered , by Union

Carbide a t l e a s t , t o be a n e c e s s a r y aspect o f s u c c e s s f u l opera t ion . (F inding

of F a c t 265) .

I

I n t h i s l i g h t , the incomplete and seemingly d isorganized frame-

wotk o f V i s c o f a n ' s o p e r a t i o n s tends t o b o l s t e r t h e doubts r a i s e d about t h e

independent development o f t h e i r opera t ions . There appears t o have been no

s y s t e m a t i c o r g a n i z a t i o n o r development of Viscofan ' s manufacturing o p e r a t i o n s

as d e s c r i b e d on t h i s record . I n s p i t e o f t h e seemingly haphazard manner i n

which drawings and p lans have been made and k e p t and standards s e t , Vlscofan

has e s t a b l i s h e d a major manufacturing o p e r a t i o n i n t h e course of a few

s h o r t years.

29 7

In c o n t r a s t to the e f f o r t s expended and system developed and main-

ta ined by Union Carbide, t h i s r e l a t i v e d isorganizat ion i s d i f f i c u l t to

comprehend. In the absence of a coherent o r c r e d i b l e explanation f o r

Viscofan ' s l a c k o f t e c h n i c a l documentation, the in ference that i t s techno-

logy was l a r g e l y acquired from V i s c o r a , r a t h e r than developed independently,

i s s t rengthened, p a r t i c u l a r l y In l i g h t of the s p e c i f i c evidence adduced

by Union Carbide o f Viscofan's s u r r e p t i t i o u s a c c e s s to t e c h n i c a l documents

and equipment a t Viscota. The evidence o f misappropriation placed on t h i s

record by Union Carbide imposed a heavy burden of persuasion by Viscofan

fhat 3 1 i t s technology was gcquired f a i r l y . Viscofan ' s attempts t o meet t h i s

bufden have, i n s t e a d , strengthened the a lready strong i n f e r e n c e o f misappro-

p r i a t ion. I

29 8

Affirmative Defenses

Patent Misuse and Unclean Bands

As affirmative defenses to the relief sought by complainants Teepak

and Union Carbide in this investigation, respondent Viscof an alleges that

by their anticompetitive conduct and intent the complainants are disqualified

under the equitable doctrines of patent misuse and unclean hands, respectively,

from obtaining any relief under E 337. Specifically, Viscofan- alleges that

"Union Carbide and Teepak have engaged in a continuing combination and

conspiracy since 1937 to share their patents, technology and know-how in

the sausage casing field for the purposes of excluding all competition from

the skinless sausage casing business, thereby enabling the two companies to

reap monopolistic profits from the sales of such casing." (Viscofan's PB,

Po 51.

The doctrine of patent misuse which is an extension of the equitable

doctrine of unclean hands to the patent field precludes enforcement of a

patent when the patent owner uses the patent in a way violative of the

antitrust laws, including the Sherman and Clayton Acts, or extends the - 10/

patent beyond its lawful scope. 4 Chisum, supra, at 5 19.04. See, e.g.,

United States Gypsum Co. V. National Gypsum Co., 352 U.S. 174 (1957). As

stated by Chisum:

Both the misuse doctrine and the antitrust laws as applied to patent practices involve a common inquiry:

- 10/ The Sherman Act provides in pertinent part: 5 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign n&ions, is declared to be illegal.... 15 U.S.C. 2 1.

0 2. o r combine o r conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor.. . .15 U. S.C. 22 .

Every person who shall monopolize, o r attempt to monopolize

299

Should the practice in question be treated as an appropriate exercise of the patentee’s statutory patent rights? If the answer to the inquiry I s affirmative, then the practice is not an Improper “extension” within the meaning of the patent misuse doctrine and should enjoy an Immunity from anti- trust liability even though but for the patent the practice would violate the antitrust laws.

0 . .

. .

Antitrust analysis involves a balancing o f patent interests and the impact or likely impact of a practice on competition. The misuse doctrine compounds the difficulty of balancing by sub- stituting for competitive injury the vague concept of “extension.”

4 Chisum, supra, 0 19.04

- The doctrine of unclean hands is based on the more general equitable

I maxim that suitors must come into court with clean hands, i.e., without

themselves being in violation of the law. Like the related equitable

doctrine o f patent misuse, it requires that there be an “immediate and

necessary relation“ between the relief sought and the particular conduct

giving rise to the unclean hands alleged.

Excavator CO., 290 U.S. 240, 245 (1933).

“[Clourts of equity ... apply the maxim requiring clean hands only where

Keystone Driller Co. V. General

As stated by the court i n Keystone:

some unconscionable act of one coming for relief has immediate and necessary

relation to the equity that he seeks in respect o f the matter in litigation.”

- Id. at 245; Glass Laboratories, Inc. V. Crystal, 165 U.S.P.Q. 647, 648,

citing Pomeroy, Equity Jurisprudence, Vol. 2, Section 399 (5th ed. 1941).

3 00

V i s c o f a n asserts i t s standing t o invoke these e q u i t a b l e d o c t r i n e s on

t h e grounds t h a t the s u i t p a t e n t i s "an i n t e g r a l p a r t o f Union Carbide/

Teepak's o v e r a l l unlawful scheme t o exc lude a l l competit ion and perpetrate

the i r monopoly i n t h e s k i n l e s s sausage business." (Viscofan ' s Response t o

Complainants' Post-Bearing S ta tements , p. 32). To meet t h e "necessary and

immediate r e l a t i o n s h i p " between t h e a l leged unconscionable conduct o f

complainants and t h e 'relief they seek ( i . e . , enforcement o f t h e s u i t p a t e n t

and p r o t e c t i o n o f t h e i r t r a d e secrets), V i s c o f a n alleges t h a t t h e s u i t

p a t e n t , owned by Teepak and l i c e n s e d t o Union Carbide, i s p a r t of an

i l l e g a l pool ing of c r o s s - l i c e n s e d p a t e n t s between Union Carbide and Teepak.

It f u r t h e r alleges t h a t t h e t r a d e secrets t h a t Union Carbide c la ims were

mi jappropr ia ted by V i s c o f a n are part o f t h e e n t i r e i l l e g a l combination and

c o n s p i r a c y , i n c l u d i n g pooled technology and know-how, whose purpose was t o

f u r t h e r the Union Carbide/Teepak monopoly and t o eliminate V i s c o f a n as a

I

competitor.

Although t h e a s s e r t e d e q u i t a b l e d e f e n s e s appear properly raised w i t h

respect t o enforcement of t h e s u i t p a t e n t , t h e same i s not so clear wi th

respect t o enforcement of t h e t r a d e secrets. Union Carbide's a l l eged

a n t i c o m p e t i t i v e wrongdoing, c la imed t o i n c l u d e i l l e g a l p a t e n t p o o l i n g ,

c o l l u s i v e p r i c e - f i x i n g and o t h e r predatory acts wi th Teepak appears un-

connected w i t h t h e alleged t h e f t of Union Carbide's t r a d e secrets i n i t s

technology. It is established on t h i s r e c o r d t h a t the l i c e n s i n g of Union

Carbide's t r a d e secrets t o Teepak was never f u l l y c a r r i e d o u t , and t h a t

Teepak l a r g e l y has n o t used UnAon Carbide's know-how.

523, 529, 532, 552).

between complainants wi th respect t o t h e t r a d e secrets at i s s u e .

(Findings o f F a c t

Thus, t h e r e has been no c o n c e r t e d , c o l l u s i v e behavior

Furthermore,

30 1

in the particular facts of chis case, due regard must be given to the

equitable nature of Viscofan's defense. It is well established that a

party seeking equitable relief must come into court with clean hands. A

balancing of the equities in this case, in which Viscofan is found to have

misappropriated trade secrets by unfair and unethical means, does not place

Viscofan in a strong position to assert such a defense. - 11/

In any event, a more comprehensive analysis seems warranted to fully

and fairly determine the merits of Viscofan's serious affirmative defenses,

which it has the burden of proving by a preponderance of the evidence of

record.

- 11/ One o f the distinctions between trade secrets and patents is that a patent holder has a limited term monopoly of his patentable invention, whereas a trade secret owner has protection of uncertain duration which is generally lost upon marzeting the product. This distinction militates against precluding enforcement of trade secrets by analogy to the patent misuse doctrine. Milgrim, Trade Secrets, 5 6.05 141.

302

- Patent Pooling/Cross Licensing Agreements

Background

Viscofan alleges that Union Carbide and Teepak began their illegal

patent pooling in 1937 when the two companies signed a "License Contract"

under which litigation as to a single patent was settled.

licensed Teepak under

Union Carbide

(Finding of Fact 438). The

referenced patent settlement was actually between Teepak and Visking

Corporation, the predecessor of Union Carbide's Films-Packaging Division,

which had developed and patented the basic cellulose casing technology used

to make skinless sausage casing. Soon thereafter,

there was competition in the cellulose casing market, with the entrance of

the Transparent Packaging Company, predecessor of Teepak, which led to

patent infringement litigation. In settlement of the infringement suit

brought against it, Teepak obtained a nonexclusive royalty-bearing license

under Visking's dominant patents. (Finding of Fact 438). Another competitor,

Sylvania Industrial Corporation, was also licensed by Visking.

Fact 439).

(Finding of Fact 438).

(Finding of

. (Finding of Fact

438) . In the mid-19501s, Teepak developed an automated belt shirring tech-

(Finding nology represented by the Blizzard '714, '715 and '201 patents.

of Fact 440).

shirring process and gave Teepak a substantial competitive advantage

This new technology was a significant improvement in the

303

over Visking. (Finding o f F a c t 441). To remain c o m p e t i t i v e , Visking

developed a s h i r r i n g process using wheels r a t h e r than b e l t s which, as

descr ibed i n t h e Matecki '949 and '574 p a t e n t s , e f f e c t e d f u r t h e r i m -

provement i n t h e art. (Findings o f F a c t 442-433). S i n c e t h e Matecki

patents ' process came w i t h i n the purview o f Teepak's B l i z z a r d patent

claims, Visking (Union Carbide) was e f f e c t i v e l y blocked i n making

f u r t h e r improvements through i t s own r e s e a r c h and development. (F inding

o f Fac t 444).

i t s B l i z z a r d p a t e n t s a g a i n s t Visking and Union Carbide (which had

j u s t acquired Visking) .

In 1957, Teepak f i l e d a patent infringement a c t i o n under

(Finding o f F a c t 446).

. After long and b i t t e r l i t i g a t i o n , Teepak and Union Carbide agreed ,

t o set t le t h e i r l i t i g a t i o n on t h e b a s i s o f a 1960 Set t lement Agreement.

Under t h e terms o f t h i s Agreement, i n r e t u r n f o r dropping i t s in f r$nge-

ment a c t i o n , Teepak rece ived a s u b s t a n t i a l sum o f money, a nonexclusive

l i c e n s e t o

- - -

t o Union Carbide

(Finding of F a c t 447),

. In r e t u r n , Teepak a l s o l i c e n s e d

i. (Findings o f F a c t 447-448).

Although t h e 1960 Set t lement Agreement reso lved patent l i t i g a t i o n

between Teepak and Union Cabide in t h e United S t a t e s , in 1962 Teepak

brought an infr ingement s u i t a g a i n s t V i s c o r a , Union Carbide's French

a f f i l i a te , based on t h e French counterpar t o f t h e B l i z z a r d patents . In

304

1965, Teepak f i l e d another p a t e n t infringement s u i t , t h i s time a g a i n s t

Kalle i n Germany, based on t h e German counterpar t o f t h e B l i z z a r d patents .

After e x t e n s i v e s e t t l e m e n t n e g o t i a t i o n s , these European l i t i g a t i o n s were

settled by Teepalc and Union Carbide i n t h e s o - c a l l e d 1967 Agrements.

(Finding o f Fact 461).

relating t o s h i r r i n g - f o r an eight-year period w e r e - c r o s s - l i c e n s e d between

the parties roya l ty - f ree .

relating t o c a s i n g s o f every kind f o r t h e same e i g h t year per iod were a l s o

c r o s s - l i c e n s e d by an opt ioning p r o c e s s whereby p a t e n t s from t h e p a t e n t pool

could be selected and used by either p a r t y , with r o y a l t y rates n e g o t i a t e d

a t a later date.

Under the 1967 Agreements, a number o f p a t e n t s

(Finding o f Fact 470). A number of p a t e n t s

(Findings o f Fact 458-467).

Anal y s i s

V l s c o f a n alleges t h a t t h e foregoing series of c r o s s - l i c e n s i n g agree-

ments, cu lminat ing i n t h e 1967 Agreements, c o n s t i t u t e a mass ive , worldwide

and I l legal p a t e n t pooling arrangement f o r t h e t r u e purpose o f c r e a t i n g a

siagle u n i f i e d technology i n t h e major areas o f sklnless sausage casing

technology which has s u b s t a n t i a l l y excluded a l l o t h e r compet i t ion from this

b u s i n e s s f o r over 40 years.

language, c o n t e x t and h i s t o r y o f these agreements, which terminated i n

1975- demonstrate t h a t they were nonexc lus ive , t h e result o f arm's-

length b a r g a i n i n g , and t h a t they settled bona f i d e p a t e n t d i s p u t e s and

r e s o l v e d important r e c u r r i n g b lock ing s i t u a t i o n s .

Complainants contend, t o t h e c o n t r a r y , that t h e

12/

(Teepak's PB, p. 28) . - 12/ Although terminated i n 1975 (VRX 510, p. 601; VRX 5231, complainants

c o n t i n u e t o o p e r a t e under t h e 1967 Agreements " u n t i l t h e e x p i r a t i o n of t h e last t o expire o f the patents . " (VRX 511, p. 00638).

305

A preponderance of the evidence of record substantially supports complainants'

posf tion.

To prove patent misuse, Viscofan has the burden of proving (1) that

the cross-licensing agreements have had an unreasonable and continuing

anticompetitive effect, and (2) that the agreements were entered into by

Teepak and Union Carbide with wrongful, anticompetitive intent. USM Corp.

V. SPS Technologies, Inc., 694 F.2d 505, 513 (7th Cir. 1982); Cutter

Laboratories, Inc. V. Lysophile-Cryochem Corp., 179 F.2d 8 0 , 93-94 (9th

Cir. 1949). It is also Viscofan's burden to prove a causal connection

between the alleged anticompetitive effects and the agreements themselves,

as distinguished from Teepak's and Union Carbide's legitimate patent rights

, which, of course, they were free to exploit. United States V. Westinghouse

Electric Corp., 648 F.2d 642, 649 (9th Cir. 1981).

Viscofan argues that the various cross-licensing agreements comprising

the patent pool were "overly broad" and went unduly further than was

necessary beyond the bona fide ends of resolving pending lawsuits and

unblocking blocking patents. Analysis of all the Agreements, especially

those in 1967, fails to sustain Viscofan's contentions. The 1967 Agreements

resolved at least four major blocking or potentially blocking patent

disputes relating to end-closure technology, twist-shirr technology,

internal coating of-the sausage casings, and the Arnold invention covered

by the suit patent. (Findings of Fact 478-504). The royalty-free cross-

licensing of these blocking patents pursuant to the 1967 Agreements was on

a nonexclusive basis, meaning that the parties were free to license them to -

306

t h i r d parties. T h i s occurred i n a t least two i n s t a n c e s w i t h Matarazzo - 13/

i n B r a z i l and Kalle i n Germany. (Findings o f F a c t 434-435).

Another p r o v i s i o n o f t h e 1967 Agreements gave each par ty a r i g h t f o r

a l i m i t e d per iod o f time t o n e g o t i a t e i n d i v i d u a l royal ty-bear ing licenses

under c e r t a i n o f t h e o t h e r ' s f u t u r e p a t e n t s and patent a p p l i c a t i o n s .

(F inding o f F a c t 517).

S t a t e s skinless sausage c a s i n g market a t t h e time, sought t h i s p r o v i s i o n

Teepak, which had less than 30% o f t h e United

because o f i t s long-standing concern about Union Carbide 's g r e a t e r r e s e a r c h

and development c a p a b i l i t y and t h e danger o f being nosed out of t h e market

by future broad patents . (Finding o f F a c t 467; R u s s e l l , TCX 502, pp. 30-

31; Clement, Tr. 1449-50). Even so, t h i s o p t i o n provis ion provided only

a temporary s a f e t y n e t , s i n c e no c e i l i n g was imposed on r o y a l t y rates f o r 4

any p a t e n t l i c e n s e s opt ioned after October 1, 1970, thus providing i n c r e a s e d

i n c e n t i v e t o t h e p a r t i e s , e s p e c i a l l y Teepak, t o push i t s independent

r e s e a r c h and development. (F indings o f F a c t 553-575). Indeed, since t h e

1967 Agreements, Teepak and Union Carbide have each c o n s t a n t l y pursued

independent t e c h n o l o g i c a l r e s e a r c h and development, t h e f r u i t s o f which

have not been exchanged. (Findings o f F a c t 521; 553-575). T h i s fact a l o n e

tends t o rebut V i s c o f a n ' s c o n t e n t i o n t h a t t h e Agreements r e s u l t e d i n a

u n i f i e d technology. Although a number of patent l i c e n s e s r e l a t i n g t o

s k i n l e s s sausage c a s i n g s were n e g o t i a t e d between Teepak and Union Carb ide ,

. w o l f f sought a l i c e n s e i n o r d e r t o permit i t t o make u s e o f Union Carbide 's technology , inc luding t h e s u i t patent and t h e a l l e g e d l y s t o l e n t r a d e secrets, t o t h e e x t e n t t h a t technology was possessed ( i l l e g a l l y ) by Viscofan, which Walsrode was seeking t o acquire . (F inding o f F a c t 676).

307

the latter firm did not utilize or incur royalties under any

such license. Teepak optioned and utilized only

one such patent license, Union Carbide's so-called Easy Peel ' 349 patent,

(VRX 55), a commercial process relating to internal coating. (Finding of

(Finding of Fact 522) .

Fact 523).

The 1967 Agreements also included a provision for exchange of shirring

know-how limited to existing know-how developed prior t o December 3 1 , 1967.

(Finding o f Fact 470) . Neither Teepak or Union Carbide ever used commercially

the know-how that was received, and no know-how was exchanged after the

provision expired in 1970. (Findings of Fact 537-545, 552). Even though

each party found, after examination and testing, that the exchanged know-how

-

4 wa's inapplicable to its own distinctive shirring system, Viscofan points to

the fact that this exchange was never fully Implemented as indicating an

intent on the part of the parties to tie-up and monopolize patents and

know-how for the purpose of denying technological knowledge to third

parties, whether or not it was useful to the parties themselves. Such an

inference in this instance appears unwarranted.

aspect of the Agreements, considered in the context of all the other

provisions and ramifications of the Agreements, and viewed in the aggregate

and in terms of the realities of the marketplace, adds up to an overriding,

pervasive and illegal anticompetitive Intent is a question that cannot be

ignored.

However, whether this

As to the immediate question o f the anticompetitive effect of the

cross-licensing agreements and patent pool, the evidence of record does not ---

sustain Viscofan's affirmative contentions. The 1967 Agreements, for

example, were not overbroad. In fact, it is arguable that they were not

308

broad enough t o prevent subsequent l i t i g a t i o n between t h e parties.

of F a c t 4 5 8 , 576).

(Findings

I also f i n d t h a t i n a very real s e n s e t h e 1967 Agreements,

l ike t h e 1960 S e t t l e m e n t Agreement, were pro-compet i t ive , s i n c e they

enabled Teepak, wi th i t s smaller market share and more l i m i t e d r e s o u r c e s ,

t o survive and compete s u c c e s s f u l l y i n t h e United States and Europe a g a i n s t

Union Carbide and i t s f o r e i g n aff i l iates. (Finding of F a c t 424). I n any

e v e n t , I am no less r e l u c t a n t than t h e Ninth C i r c u i t , to s u b s t i t u t e a t r ia l

c o u r t ' s s p e c u l a t i o n as t o o t h e r preferable a l t e r n a t i v e s t o t h e n e g o t i a t e d

s e t t l e m e n t o f t h e b lock ing and o t h e r p a t e n t d i s p u t e s i t u a t i o n s i n t h i s

case. See Carpet Seam Tape Leading Corp. V. B e s t Seam, I n c . , 694 F.2d 5 7 0 ,

580 ( 9 t h C i r . 1982).

309

P r i c e - F i x i n g

Viscofan asserts t h a t , by reason o f their i l l e g a l patent pool and

c r o s s - l i c e n s i n g arrangements, r e s u l t i n g i n shared technology and e x c l u s i o n

o f compet i t ion , Union Carbide and Teepak are able t o and do charge i d e n t i c a l

prices f o r t h e i r c a s i n g products , never g r a n t s i g n i f i c a n t c l o s e o u t s , and

c o l l u s i v e l y raise p r i c e s f o r c a s i n g s by t h e same amount each year, conforming

e x a c t l y t o each o t h e r ' s a l t e r n a t e year price i n c r e a s e s . ( V i s c o f a n ' s Response

t o Complainants' Post-Hearing S ta tements , pp. 44, 45). Thus, argues V i s c o f a n ,

t h e patent pool was used as a v e h i c l e by which t h e complainants have been

a b l e t o engage i n c o l l u s i v e p r i c i n g practices which c o n s t i t u t e patent

misuse.

The record c e r t a i n l y conf irms a remarkably

p r i c i n g p a t t e r n f o r t h e sale o f sausage c a s i n g s

over a s u b s t a n t i a l per iod o f time. (Finding o f

s i m i l a r , and o f t e n i d e n t i c a l

by Union Carbide and Teepak

F a c t 364) .

(Findings o f F a c t 397-402). However, t h e record a l s o reflects s u b s t a n t i a l

evidence o f price competit ion. For example, i n a t least o f t h e past

y e a r s Teepak announced a new price i n c r e a s e which Union Carbide d i d

not fo l low.

Union Carbide announced i ts own lower price i n c r e a s e , Teepak reduced i t s

p r i c e s t o match Union Carbide's

(F inding o f F a c t 364). I n e a c h o f t h e s e i n s t a n c e s , when

. (Finding o f F a c t 370-371). It i s a l s o t r u e t h a t i n most o f t h e

p a s t y e a r s , complainants d i d n o t fo l low each o t h e r i n t h e e f f e c t i v e

date o f t h e price i n c r e a s e , and-used t h e time d i f f e r e n t i a l t o o f f e r extended

310

"pre-buy" or "buy-in'' per iods during which t h e cas ings could be bought a t

t h e o l d p r i c e . (Findings o f F a c t 373-374).

Other evidence o f independent price competi t ion inc ludes

. (Finding o f F a c t 380).

. (Finding o f F a c t 381). Both

complainants engage i n nonprice competi t ion i n t h e i r r e s p e c t i v e terms o f

sale, such as

i. (Finding o f F a c t 383). Other evidence o f cornpetit ion i n

nonprice areas by both complainants , a c t i n g independently of each o t h e r ,

inc lude (1) c o n t i n u a l improvements i n product q u a l i t y and minimizat ion o f

product d e f e c t s ; (2 ) p r o v i s i o n s o f e x t e n s i v e t e c h n i c a l s e r v i c e s t o customers;

(3) s u b s t a n t i a l , cont inuing investment i n r e s e a r c h and development t o

ach ieve c o s t reduct ions and c r e a t i o n o f new products , as well as b e t t e r

q u a l i t y ; and (4) innovat ive marketing and sales approaches, inc luding

es tab l i shment o f r e g i o n a l f ac i l i t i es t o provide t imely d e l i v e r y d e s i r e d by

customers. (F indings o f Fact 409-420).

Perhaps t h e b e s t evidence o f t h e vigorous n a t u r e o f t h i s compet i t ion

I S

. (Finding o f F a c t 424).

311

i s s u f f i c i e n t t o i n d i c a t e t h a t t h e market i s f u n c t i o n i q competi t ively .

(Finding of F a c t 423).

I n support o f i t s c o l l u s i o n argument, Viscofan asserts t h a t con-

s c i o u s l y parallel p r i c e - s e t t i n g by two o r more sel lers , even i n t h e

absence o f an express agreement, can be a n t i c o m p e t i t i v e wi th in t h e

meaning o f t h e Sherman A c t , i f such i s t h e i n t e n t and effect.

re ference t o price s i g n a l l i n g i n t h i s connect ion i s not well founded,

Viscofan ' s

s i n c e price i n c r e a s e s are g e n e r a l l y announced only t o customers, r a t h e r

than p u b l i c l y , and there i s no evidence t h a t Union C a r b i d e and Teepak

e v e r d i s c u s s e d United States prices wi th each other .

368). Indeed, advance n o t i c e s o f price i n c r e a s e s i n an o l i g o p o l i s t i c

industry are n o t unlawful under t h e a n t i t r u s t laws.

Nemours & Co. V. F.T.C., 729 F.2d 128, 139 (2d C i r . 1984). Economist

Nehmer's opinion t h a t price s i g n a l l i n g was a l i k e l y f a c t o r here adds

l i t t l e weight on t h i s i s s u e i n view of t h e contrary opinion o f D r .

Berry, a no less q u a l i f i e d economist. ( B e r r y , UCX 817, p. 6; - See

Findings o f Fact 695-697).

(Finding o f F a c t

.r

E . I . DuPont de

Mr. Nehmer's f u r t h e r opinion t h a t complainants' p r i c i n g practices

are c o l l u s i v e a l s o lacks c r e d i b i l i t y . Contrary t o established law, t h a t

consc ious ly parallel a c t i v i t y without agreement i s n o t a v i o l a t i o n of t h e

Sherman A c t , Mr. Nehmer def ines c o l l u s i o n t o inc lude consc ious ly parallel

a c t i o n s i n t h e c ircumstances of t h i s case, where t h e r e has been no sub-

s t a n t i a l showing of even tac i t agreement fo f i x prices. Theater E n t e r p r i s e

V. Paramount Film D i s t r i b u t i n g Corp. , 346 U.S. 537, 541 (1954); Turner , The

D e f i n i t i o n o f Agreement Under <he Sherman A c t :

Refusa ls t o Deal, 75 Harv. L. Rev. 655, 681 (1962). Mr. Nehmer unreasonably

i g n o r e s t h e d u o p o l i s t i c nature o f t h e s k i n l e s s sausage c a s i n g i n d u s t r y ,

Conscious P a r r a l e l i s m and

312

i n which the product i s highly standardized, and the demand for the product

i s i n e l a s t i c . (Finding of Fact 393). In such a market situation, paral lel

pricing i s

decisions.

by cutting

the l i k e l y

each would

exactly what one would expect as a result of independent pricing

I f either Teepak or Union Carbide tried to gain market shares

prices, the other would immediately match the lower price, w i t h

result that neither party would gain market shares, and thus

be making fewer profits w i t h the same market share. E . I . Dupont

de Nemours C Co. V . F.T.C. , 729 F.2d a t 139. Thus, i n the absence of any

unlawful agreement or conspiracy, neither Union Carbide nor Teepak would be

expected to i n i t i a t e price reductions. (Berry, UCX 8 1 7 , pp. 4 , 10).

Mr. Nehmer's collusion opinion was partly based on the respective

1 market shares, which he perceived as stable, ref lecting a controlled market.

He apparently discounted the f a c t that between 1 9 7 2 and 1983,

Mr. Nehmer himself agreed

. (Finding of Fact 424).

would

be a good indication that the market was functioning competitively.

ing of Fact 423).

(Find-

Dr. Berry regarded the pricing pattern i n t h i s industry

as "one of competitive interaction, not of col lusive s t a b i l i t y . "

UCX 817, pp. 9-10). Similarly, Mr. Nehmer's reliance on the alleged

(Berry,

absence of e f f o r t s by Union Carbide and Teepak to try to expand the t o t a l

market i s misplaced, i n view of Union Carbide's e f f o r t s to promote and

increase hot dog consumption and, thereby, the sales of casings.

of Fact 416-418, 696-697). Dr. P h i l l i p s , Viscofan's second economic witness,

(Findings

added l i t t l e to Mr. Nehmer's flawed testimony, largely because he was

singularly uninfonned about the particular industry i n which complainants

compete. (Findings of Fact 697-701). His testimony mainly tends to

313

conf irm t h e e x i s t e n c e o f compet i t ion i n t h i s i n d u s t r y , by l i s t i n g f a c t o r s

i n d i c a t i n g r i v a l r y r a t h e r than c o l l u s i o n , such as market s h a r e changes and

cost reduct ion e f f o r t s , each o f which are present i n t h e sausage c a s i n g

industry . ( P h i l l i p s , VRX 584; Tr. 1200-01).

My c o n c l u s i o n t h a t no c o l l u s i v e p r i c i n g by complainants under t h e anti-

trust laws has been shown on t h f s record i s r e i n f o r c e d by t h e opin ion o f

Teepak’s economlc e x p e r t based on h i s e v a l u a t i o n o f t h e entire record.

(Haldi , Tr. 1702-03; Finding of F a c t 6 9 4 ) .

314

Predatory Activities

As evidence of Teepak's and Union Carbide's anticompetitive actions

and intent, Viscofan asserts that Kollross, representing Kuko-Maschinenbau

Kollross GmbH, a German supplier of shirring machinery, refused to deal

with it because of predatory actions by Teepak and Union Carbide.

brief, the facts are that Kollross sold a skinless sausage casing shirring

machine to Viscofan in 1976; the machine was shipped to Viscofan in 1977,

In

but was returned to Kollross the same year for modification;

(Findings of Fact 588, 593-599, 605). In

January 1979, Kollross informed Teepak

' (VRX 145, p.

4547) and in August of that year

I. (TCX 400, 411). In December 1979,

. (TCX 400-2, 404, 406, 409;

VRX 262).

I. (VRX 273). In October

1980,

. (TCX 410; UCX 562). However, during this same time period, Kollross agreed

3 15

t o s e l l Kuko-4 technology t o Kalle i n Germany and Fuj imori i n Japan.

(F inding o f F a c t 612). I n 1 9 8 0 , Teepak concluded t h a t K o l l r o s s ' Kuko-4

machine i n f r i n g e d t h e Arnold patent and threatened K o l l r o s s with patent

enforcement a c t i o n s beginning i n 1982. (F indings o f F a c t 621-622)

.. (Finding o f F a c t 636).

V iscofan cites t h e foregoing s c e n a r i o as r e v e a l i n g t h e i n s i d i o u s

e f f o r t s o f Teepak and Union Carbide, a c t i n g i n combination, t o des t roy

competi t ion and perpetuate their monopoly, p a r t i c u l a r l y a g a i n s t V i s c o f a n

and K o l l r o s s ' Kuko-4 r o t a t i n g head machine. F o r example, ViScofan asserts

#

, (Findings o f F a c t 617, 6 1 8 ) ,

However , t h i s c o n t e n t i o n i s not well-founded i n view of t h e e s t a b l i s h e d fact t h a t

K o l l r o s s proposed making t h e Kuko-4 machine a v a i l a b l e t o Viscofan i n

December 1979 t o sat is i fy t h e o b l i g a t i o n It had t o Viscofan d a t i n g back t o

1976. (TCX 403).

316

The f u r t h e r fact t h a t

. ;TCx 408). The additional fact

t h a t

(Finding o f F a c t 618).

A review o f the

,

, (Finding of

Fact 632). However, by September 1981, as previously noted, Kol l ross had

already determined not t o sel l Viscofan any machine,

633)

(Finding o f Fact

. (VRX 2 8 2 , p. 12423).

317

(Finding o f F a c t 6 4 4 ) .

, can hardly be c l a s s i f i e d

a6 anticompeti t ive i n the context o f the Sherman A c t .

(W 336, p. 13166).

318

Although t h i s language bespeaks a g g r e s s i v e compet i t ion , it hardly

appears t o be t h e kind o f a c t i v i t y p r o h i b i t e d by t h e Sherman A c t , mani-

f e s t i n g a n a n t i c o m p e t i t i v e i n t e n t . Indeed, t h i s i s not t h e language o f a

predatory monopolist. It i s , i n s t e a d , language of a reasonable competi tor

who seeks t o e x p l o i t h i s p a t e n t s well w i t h i n t h e purposes and i n t e n t i o n s o f

t h e patent g r a n t s when confronted by p o t e n t i a l compet i t ion. See United

S t a t e s v E.I . duPont de Nemours & Co., 118 F. Supp. 4 1 , 5 1 , 53 (D. Del.

-

1953).

. (Finding

o f F a c t 654).

319

. ( V U 2 6 9 , p. 13705) .

. Yet the

record shows no s u b s t a n t i a l evidence o f d i s c u s s i o n s or c o n t a c t s between t h e

complainants concerning K o l l r o s s .

the d e a l i n g s between Teepak and K o l l r o s s ( B a i l i e , T r . 417-48) , and Teepak's

on ly information about K o l l r o s s ' r e l a t i o n s h i p with Union Carbide came from

K o l l r o s s h imse l f . (Finding o f F a c t 646) . C e r t a i n l y Teepak was e n t i t l e d

t o e n f o r c e , as well as i n good f a i t h t o t h r e a t e n t o e n f o r c e , i t s patent

15' See r i g h t s a g a i n s t i n f r i n g e r s as i t considered K o l l r o s s t o be.-

Coas ta l S a l e s Marketing, Inc . V. Hunt, 697 F.2d 1358 , 1367 ( 5 t h C i r . 1983) ;

Union Carbide knew l i t t l e or nothing o f

-

I E. I. DuPont de Nemours V. Berk ley & Co., I n c . , 620 F.2d 1247 ( 8 t h C i r .

1980). Furthermore, Teepak's patent enforcement e f f o r t s ,

, were i n t h e independent economic s e l f - i n t e r e s t o f Teepak.

Not only does t h e e v i d e n t i a r y record f a i l t o show any s u b s t a n t i a l

c a u s a l l i n k between and K o l l r o s s ' r e f u s a l

t o d e a l wi th V i s c o f a n , t h e r e is no s u b s t a n t i a l showing t h a t Viscofan was

economical ly hur t o r deprived by K o l l r o s s ' a c t i o n , whatever t h e mot ivat ion

might have been. By 1979-1980, when Viscofan was s e r i o u s l y press ing K o l l r o s s

- 15/ As previous ly noted , Teepak concluded as e a r l y as 1 9 8 0 , and v e r i f i e d by t e s t i n g a Kuko-4 machine, t h a t K o l l r o s s ' r o t a t i n g head technology i n f r i n g e d t h e s u i t patent . (Arnold, TCX 3 3 , pp. 14-16; S t o r y , TCX 3 4 , pp. 9-11).

320

f o r i t s machine, V i s c o f a n was a l r e a d y s e l l i n g i t s sausage casings s u c c e s s f u l l y

i n Europe and L a t i n America using shirring technology i t had developed and

which i t considered s u p e r i o r t o K o l l r o s s ' technology. (TCX 1 4 0 ; Valdes,

UCPX 1 3 2 , pp. 326-28). Moreover, t h e claim t h a t V i s c o f a n was delayed i n

e n t e r i n g t h e United S t a t e s market i s i n c o n s i s t e n t v i t h Valdes' test imony

t h a t V i s c o f a n d id not regard United States prices as a t t r a c t i v e u n t i l late

i n 1982. (UCX 249; Valdes d e p . , UCPX 1 3 0 , p. 237).

F i n a l l y , t h e co inc idence o f t h e complainants' separate i n t e r e s t s

i n s u f f i c i e n t evidence t o s u s t a i n an i n f e r e n c e o f c o n s c i o u s l y parallel

conduct by t h o s e parties, much less i n f e r e n c e of c o l l u s i o n o r conspiracy.

An i n f e r e n c e o f conspiracy i s always unreasonable when it i s based s o l e l y

on parallel behavior t h a t c a n be expla ined as t h e r e s u l t of t h e independent

b u s i n e s s judgment o f t h e parties. Southway Theatres, Inc . V. Georgia

Theatre Co., 672 P.2d 4 8 5 , 494 ( 5 t h C i r . 1982). Indeed, when proof e s t a b -

l i s h e s a f a c t u a l s i t u a t i o n which would equally j u s t i f y t h e conduct complained

o f as being motivated by independent s e l f - i n t e r e s t o r as t o l e a d t o an

i n f e r e n c e o f c o n s p i r a c y , then respondent has f a i l e d t o carry i ts burden.

Johnson V . Branch, 242 P a Supp. 7 2 1 , 732 (E.D.N.C. 1965) , rev'd and

remanded on o t h e r grounds, 364 F.2d 177 ( 4 t h Clr. 1966) , - cert. denied , 385

U.S. 1003 (1967).

321

Neaot ia t ions t o Purchase Viscofan

I n f u r t h e r support o f i t s predatory p r a c t i c e s charge a g a i n s t complainants ,

V iscofan accuses Union Carbide and Teepak o f engaging i n sham n e g o t i a t i o n s

f o r t h e purchase o f -Viscofan, f o r t h e purpose o f denying i t needed c a p i t a l

and t o e l i m i n a t e i t as a competi tor . (Viscofan PB, p. 61). These conten-

t i o n s are not s u s t a i n e d by a preponderance o f evidence. I n fact , i n re-

sponse t o Viscofan ' s inquiry in 1979-1980, when i t was i n need o f a d d i t i o n a l

opera t ing c a p i t a l , Teepak r e p r e s e n t a t i v e s v i s i t e d Viscofan ' s f a c i l i t y

. (Hofmann, TCX 499, pp. 65-67, 85-88; Finding o f F a c t 663).

. (Hofmann, TCX 499, pp.

68-69; Miller, TCX 528, v o l . I , pp. 63-63).

As f o r Union Carbide's conduct , t h e r e were s e v e r a l meetings between

r e p r e s e n t a t i v e s o f t h e parties t o d i s c u s s p o s s i b l e a c q u i s i t i o n o f Viscofan

by Union Carbide. The s e r i o u s d i s c u s s i o n s e v e n t u a l l y terminated i n June

1980, l a r g e l y because (1) V i s c o f a n r e f u s e d t o agree t o an a u d i t ; (2) Union

Carbide was concerned t h a t V i s c o f a n employees o r shareholders would s e l l

Union Carbide technology and p r o p r i e t a r y know-how t o t h i r d p a r t i e s even i f

t h e purchase was made; and (3) t h e p a r t i e s could not a g r e e on a sale price.

(Thery, UCPX 113, pp. 47, 50-51; B a i l i e , UCPX 142, p. 91). Although Union

322

Carbide may not have needed V i s c o f a n ' s s h i r r i n g machine technology , i t

considered t h e p o s s i b l e purchase o f V i s c o f a n as a way o f buying back the

technology i t b e l i e v e d had been s t o l e n from i t and o f s e t t l i n g outstanding

legal d i f f e r e n c e s with Viscofan. (Thery , UCPX 1 1 3 , p. 3 4 ; B a i l i e , UCPX

1 4 2 , p. 9 0 ; UCX 601-608).

Negot ia t ions w i t h Wolff Walsrode

During t h e foregoing n e g o t i a t i o n s , Union Carbide was made aware t h a t

V i s c o f a n was d i s c u s s i n g i t s p o s s i b l e a c q u i s i t i o n by another party,

Wolff Walsrode A.G., a German sausage c a s i n g manufacturer and s u b s i d i a r y

o f B a y e r , A.G. (Finding o f F a c t 670). I n c i d e n t t o t h e la t ter d i s c u s s i o n s ,

Wdlff came t o Union Carbide t o seek a l i c e n s e t o use t h e latter's t w i s t e d

st ick patented technology t h a t would enable W o l f f , by unblocking , i n effect,

4

t o s e l l this and t h e technology i t hoped t o a c q u i r e from V i s c o f a n i n t h e

major developed markets. (Finding o f F a c t 676). After some d i s c u s s i o n s

wi th Wolff r e p r e s e n t a t i v e s , Union Carbide expressed no i n t e r e s t i n g r a n t i n g

a l i c e n s e t o Wolff i n connection w i t h t h e latter's proposed a c q u i s i t i o n o f

V i s c o f a n technology. Union Carbide took the not unreasonable p o s i t i o n t h a t

t h a t technology i n v i t a l part had been s t o l e n from V i s c o r a and that Union

Carbide intended t o cont inue i t s legal a c t i o n s a g a i n s t V i s c o f a n t o p r o t e c t

i s p a t e n t s and know-how. ( B a i l i e , UCPX 1 4 2 , pp. 8 4 , 97-98; Findings o f

F a c t 689-690).

I n a later June 1980 meeting w i t h Wolff r e p r e s e n t a t i v e s , who were

trying t o keep t h e i r l i c e n s i n g r e q u e s t a l i v e , Union Carbide was i n v i t e d t o . --

d e a l wi th t h e r e s p o n s i b l e o f f i c i a l a t Bayer, Wolff 's parent Company.

(Bai l ie , UCX 632B; UCPX 1 4 2 , pp. 85-87). A t a subsequent meeting wi th

323

Bayer r e p r e s e n t a t i v e s in August 1980, Union Carbide expressed s u r p r i e e t h a t

Bayer would, through W o l f f , buy a company t h a t s t o l e technology and i n d i c a t e d

t h a t lawsuits would cont inue a g a i n s t t h e peraons r e s p o n s i b l e f o r the t h e f t ,

(F indings o f F a c t 6 7 8 , 6 7 9 , 688).

Carbide brought pressure t o b e a r on Bayer t o i n t e r f e r e wi th Wolff's p o s s i b l e

Despi te Viscofan ' s charge t h a t Union

agreement wi th V i s c o f a n , Union Carbide had no r e l e v a n t c o n t r a c t u a l rela2bon-

s h i p s with Bayer and d i d not sugges t t o Bayer t h a t purchase o f V i s c o f a n

would a d v e r s e l y affect t h e i r r e l a t i o n s h i p . (Stephenson, UCPX 1 4 1 , pp. 1 3 ,

3 2 , 34-35). T h e r e a f t e r , Bayer vetoed Wol f f ' s planned a c q u i s i t i o n and i n

October 1980 Wolff c a n c e l l e d i t s agreement wi th Viscofan . (Finding o f F a c t

690) . I

All c i rcumstances c o n s i d e r e d , i n c l u d i n g t h e fact t h a t Union Carbide

had no l e g a l o b l i g a t i o n t o g r a n t Wolff t h e l i c e n s e it sought , I f i n d t h e

evidence o f record i n s u f f i c i e n t t o s u s t a i n Viscofan ' s c o n t e n t i o n t h a t the

conduct o f Union Carbide o r Teepak i n t h i s i n s t a n c e o r any o t h e r s a l l e g e d ,

separately o r c o l l e c t i v e l y , was predatory and intended t o exclude compet i t ion

w i t h i n t h e p r o h i b i t e d ambit o f t h e Sherman A c t .

V iscofan ' s final a l l e g a t i o n i s t h a t complainants' pa tent infringement

threats and i n s t i t u t i o n o f t h i s i n v e s t i g a t i o n are "part o f t h e o v e r - a l l

m o n o p o l i s t i c scheme, and demonstrate t h e i l l e g a l i t y o f t h e o r i g i n a l p a t e n t

pool." As p r e v i o u s l y n o t e d , p a t e n t in f r ingement s u i t s brought i n good

f a i t h do n o t c o n s t i t u t e patent misuse. S e e , e.g. , E.I. DuPont de ~ e ~ o u r s V.

B e r k l e y & Co., 6 2 0 F.2d a t 1273.; Ansul Co. V. U n i r o y a l , I n c . , 448 F.2d 8 7 2 , 882

(2d C i r . 1971). S i m i l a r l y , good f a i t h warnings o f in f r ingment and threats

of p a t e n t l i t i g a t i o n do not c o n s t i t u t e a b a s i s f o r a c l a i m o f patent

misuse. Coastal S a l e s Marketing, I n c . , 697 F.2d at 1367; Outboard Marine

324

Corp. V. P e z e t e l , 474 F. Supp:168 (D. Del. 1979). Ae f o r t h e present

i n v e s t i g a t i o n , c e r t a i n l y any fair-minded review o f t h e record would

i n d i c a t e t h a t what is involved h e r e i s anything but a spurious o r sham

proceediog. Indeed, as borne out by my judgment, t h e r e is s u b s t a n t i a l

evidence t o show patent Infringement and t r a d e secret misappropriat ion by

V i s c o f a n , as a l l e g e d by complainants.

325

Anticompetit ive I n t e n t

The d u o p o l i s t i c nature o f t h e s k i n l e s s sausage casing market , dominated

a8 it is by t h e complainants, r e q u i r e s careful c o n s i d e r a t i o n o f Viscofan ' s

u l t i m a t e content iot l t h a t " l i t i g a t i o n , even if based on a c o l o r a b l e claim o f

patent infringement and t r a d e secret misappropr ia t ion , c a n be p a r t o f an

o v e r a l l scheme t o monopolize o r r e s t r a i n trade." (Viscofan PB, p. 48).

L i t i g a t i o n which has an improper a n t i c o m p e t i t i v e purpose can be a c t i o n a b l e

under t h e a n t i t r u s t laws without showing malice. Grip-Pak, I n c . V. I l l i n o i s

Tool Works, Inc. . 694 F.2d 466 ( 7 t h C i r . 1982) T h i s precept is well s t a t e d

i n Kobe, Inc . V. Dempsey Pump Co., 198 F.2d 4 1 6 , 425 ( 1 0 t h C i r . 1952) ,

c i t i n g t h e Supreme Court i n American Tobacco Co. V. United S t a t e s , 328 U.S.

d.

7 8 1 , 809:

It is not t h e form o f t h e combination o r t h e p a r t i c u l a r means used but t h e r e s u l t t o be achieved t h a t t h e s t a t u t e condemns. It is not o f importance whether t h e means used t o accomplish t h e unlawful o b j e c t i v e a r e i n themselves lawful o r unlawful. Acts done t o g i v e effect t o t h e conspiracy may be i n themselves wholly innocent acts. Y e t , if they are p a r t o f t h e sum o f t h e acts which are r e l i e d upon t o e f f e c t u a t e t h e conspiracy which t h e s t a t u t e f o r b i d s , they come w i t h i n i t s p r o h i b i t i o n .

Although I would not c h a r a c t e r i z e complainants' conduct i n p r o t e c t i n g

i t s p a t e n t s and t r a d e secrets as "wholly innocent acts," I have found t h a t

the a l l e g e d acts Viscofan relies on t o show "bad purpose," i n c l u d i n g t h e

c r o s s - l i c e n s i n g arrangements/patent p o o l , t h e parallel p r i c i n g , and t h e

s u c c e s s i o n o f predatory a c t i v i t i e s , do not in themselves demonstrate a n t i -

c o m p e t i t i v e conduct w i t h i n t h e meaning o f t h e Sherman Act . But if t h i s

underlying purpose o r i n t e n t ; - o r if t h e cumulative p a t t e r n or effect o f

t h e s e acts, is t o c o n f e r on complainants t h e power t o c o n t r o l p r i c e s and

32 6

exclude compet i t ion , then i l l e g a l monopolization i s present .

V. E.I. DuPont de Nemours & Co., 118 F. Supp. a t 196. Because monopoly power

can be d i s t i n g u i s h e d from t h e normal freedom o f b u s i n e s s only i n degree (go)#

- See United S t a t e s

a l l facts and c i rcumstances r e l a t i n g t o t h e manufacture and sale o f s k i n l e s s

sausage c a s i n g s must be considered i n t h e l i g h t o f t h e economic realities of t h e

market . The market o r i n d u s t r y s e t t i n g h e r e has p r e v i o u s l y been

recognized. The domestic s k i n l e e s sausage c a s i n g market i s c h a r a c t e r i z e d

by high c o n c e n t r a t i o n

small l i k e l i h o o d of new e n t r i e s because o f a f a i r l y f l a t , s t a b l e market and

c a p i t a l - i n t e n s i v e i n d u s t r y ; i n e l a s t i c demand; and homogeneity o f product.

These i n d u s t r y c h a r a c t e r i s t i c s l e a d t o a n a t u r a l o l i g o p o l y wi th a high a

degree o f p r i c i n g interdependence' i n which t h e r e i s far less i n c e n t i v e t o

engage i n price competit ion than if t h e r e had been many sellers i n an

expanding market. E.I. DuPont de Nemours & Co. V. F.T.C., 729 F.2d 1 2 8 ,

132 (2d C i r . 1984). As s t a t e d by t h e c o u r t i n DuPont V. F.T.C.:

Although a manufacturer i n an i n e l a s t i c market c a n temporar i ly c a p t u r e an i n c r e a s e d market share by p r i c e r e d u c t i o n s o r secret d i s c o u n t s , t h e r e d u c t i o n s o r d i s c o u n t s are u s u a l l y d iscovered and met, sooner o r later by some form o f compet i t ion by o t h e r producers without i n c r e a s i n g t h e volume of t o t a l sales i n t h e market. 438 U.S. 422, 456 (1978).

See United S t a t e s V. United S t a t e s Gypsum Co., The sole effect o f a p r i c e

r e d u c t i o n i n a d e c l i n i n g , i n e l a s t i c market, t h e r e f o r e , i s to reduce t h e Industry's t o t a l p r o f i t s .

Id. a t 132. - -

I n view o f t h e s e economic real i t ies , i t i s reasonable t o conc lude , a b s e n t

any clear showing o f a n t i c o m p e t i t i v e I n t e n t , t h a t t h e consc ious parallelism

i n t h e p r i c i n g p a t t e r n p r a c t i c e d by t h e complainants i s due more t o t h e

327

nature and c o n d i t i o n o f t h e market than t o any i n t e n t i o n a l conspiracy t o

f i x prices. It a l s o fol lows t h a t complainants l a c k t h e power t o a r b i t r a r i l y

raise prices o f sausage c a s i n g s without regard f o r competit ive p r e s s u r e s , a

p r i n c i p a l requirement o r i n d i c a t o r o f monopoly power and market c o n t r o l ,

United States V. DuPont, 118 F. Supp. a t 206.

430-432).

p r i c i n g a c t i v i t i e s o f and i n t e r a c t i o n between complainants.

(See - Findings o f F a c t

This conclusion i s a l s o i n accord with t h e previously discussed

Thus, as s t a t e d by Judge b o x i n United States V. Aluminum Company o f

America, 9 1 F. Supp. 333, 346 (S.D.N.Y. 1950), " the possession o f monopoly

power i s something o t h e r than t h e s t a t u s i n a market o f a dominant firm.

'Rte dominant firm may have n e i t h e r the power t o exclude competi tors , nor

t h e power t o fix prices."

t h e degree of power i n o t h e r sel lers , o v e r t h e i r own a c t i o n s , and by t h e

effect o f that power on t h e a c t i o n s of t h e seller under a t t a c k .

States V. DuPont, 118 F. Supp. a t 208. In o t h e r words, t h e fact t h a t

Teepak followed Union Carbide's prices, o r v i c e v e r s a , does not prove

monopoly power i n one o r t h e o t h e r , s i n c e t h e prices charged were f a i r l y

d i c t a t e d by t h e competit ive condit ions i n t h e sausage casing market.

presence o f the demonstrated market c o n d i t i o n s also tends t o b l u n t Viscofan's

argument o f c o l l u s i o n between complainants t o f ix prices, s i n c e t h e r e i s a

na t u r d market tendency toward i d e n t i c a l o r parallel p r i c i n g . S i m i l a r l y ,

Union Carbide's r e l a t i v e l y high p r o f i t s over t h e years do not n e c e s s a r i l y

demonstrate monopoly c o n t r o l Qmr prices.

e x p l a i n a b l e i n terms o f t h e i n t e n s i v e capital needs t o s u s t a i n e f f i c i e n t

business operat ions and t o promote competi t ive r e s e a r c h and development.

1

The power o f a sel ler , o f c o u r s e , i s measured by

United

The

Such p r o f i t s are more reasonably

328

As f o r the market c o n t r o l allegedly achieved by t h e parties through

the i r " p a t e n t p o o l , " a n agreement f o r c r o s s - l i c e n s i n g and a purported

d i v i s i o n o f royalties v i o l a t e s t h e Sherman A c t on ly when used t o effect

a monopoly, t o fix prices, o r t o impose otherwise unreasonable r e s t r a i n t s

on i n t e r s t a t e cosnmerce.

9 U.S.P.Q. 6, 11-12 (S.Ct. 1931). As p r e v i o u s l y d i s c u s s e d , the cross -

l i c e n s i n g agreements here were nonexc lus ive i n every i n s t a n c e and, not-

withstanding t h e stable, i n e l a s t i c market c o n d i t i o n s , have r e s u l t e d i n

e n t r y o f at least two l i c e n s e e s , Matarazzo and Kalle.

i s t h e prospect o f i n c r e a s i n g compet i t ion from o t h e r c o m p e t i t o r s , both

domestic and f o r e i g n , using independent o r o t h e r patented technology

wi-thout t e c h n i c a l a s s i s t a n c e from compla inants , e.g., Kalle. (See, p. 307,

supra , n. 13) .

Standard O i l Company o f Indiana V. United States,

A d d i t i o n a l l y , there

There i s also s u b s t a n t i a l evidence o f record t h a t complainants lack

t h e power t o exclude compet i tors o v e r and above t h e i r r i g h t f u l l i m i t e d

p a t e n t monopoly powers, t h e proper exercise o f which i s not p r o h i b i t e d by

t h e Sherman Act . As previous ly n o t e d , complainants' p a t e n t s are a v a i l a b l e

f o r l i c e n s i n g on a r o y a l t y basis t h a t has not been shown t o be unreasonable.

In. t h i s c o n n e c t i o n , it i s s i g n i f i c a n t t h a t V i s c o f a n chose t o f o r e g o t h e

opportuni ty of seeking a l i c e n s e under t h e s u i t p a t e n t from Union Carbide

when it approached Union Carbide's French subs idary f o r t h a t purpose.

(UCX 596, 601).

The fact t h a t o t b r comparri-es have been able t o participate com-

p e t i t i v e l y i n t h e market using technology n o t p r o t e c t e d by p a t e n t s owned by

one complainant o r t h e o t h e r and t h e v igorous and independent research and

development programs o f each complainant a l s o tend t o show no a b s o l u t e

329

t e c h n o l o g i c a l c o n t r o l by cornplainants i n t h e industry . The r e l a t i v e l y

i n t e n s i v e p r i c e and non-price competi t ion between t h e complainants, as

previous ly d i s c u s s e d , has had t h e compet i t ive r e s u l t o f s u b s t a n t i a l s h i f t s

i n market s h a r e s between them over a per iod of years . (Finding o f F a c t 424) .

These s t rong pro-competit ive f a c t o r s s u b s t a n t i a l l y undercut any c o n t e n t i o n

t h a t complainants' pa tent c r o s s - l i c e n s i n g and o t h e r p r a c t i c e s have t h e

power t o exc lude competi tors .

at 212 ( ce l lophane industry) .

*Uni ted S t a t e s V. DuPont, 118 F. Supp.

The p r i n c i p a l l e g a l a u t h o r i t i e s c i t e d by Viscofan i n support o f

i t s patent misuse defense are not he lpfu l t o i t s cause. Kobe, Inc . V.

Dempsey Pump Co., 198 F.2d 416, involved assignment o f a l l hydraul i c pump

p a t e n t s owned by Kobe and i ts prime c o n t r a c t o r t o a new holding company,

Roko, f o r a 25 y e a r per iod , beginning i n 1933. A l l f u t u r e invent ions o r

p a t e n t s relating t o hydraul i c pumps were a lso assigned t o Roko, with only

Kobe and i t s prime c o n t r a c t o r having a r i g h t t o l i c e n s e p a t e n t s from Roko.

Many o f t h e pooled p a t e n t s were never u t i l i z e d t o manufacture hydraul i c

pumps, and a common p r i c e schedule was binding on any l i c e n s e e s under t h e

pooled patents . The pool agreement i t se l f provided t h a t i t s purpose was t o

a c q u i r e p a t e n t s and do everything reasonably p o s s i b l e t o "bui ld up and

maintain i t s patent monopoly." - Id. at 420.

o f f e r e d t o t h e i n d u s t r y u n t i l 1948, when t h e Dempsey pump was introduced.

T h i s provoked a series o f patent Infringement t h r e a t s by Kobe to purchasers

of t h e new pump which adverse ly a f f e c t e d Dempsey's business .

Kobe f i l e d a patent infringement a c t i o n a g a i n s t Dempsey.

c o u r t a f f i rmed t h e t r ia l c o u r t ' s judgment f o r Dempsey on t h e grounds that

Kobe's s u i t , a l though brought i n t h e good f a i t h b e l i e f t h a t t h e r e was

I

No o t h e r hydraul i c pump was

Thereafter - The a p p e l l a t e

330

in f r ingement , was f o r t h e "real purpose" o f f u r t h e r i n g t h e e x i s t i n g p a t e n t

pool monopoly and t o e l i m i n a t e Dempsey as a competitor.

Although V i s c o f a n asserts t h a t t h e r e s u l t i n Kobe should apply i n

t h e case at b a r , t h e two cases are clearly d i s t i n g u i s h a b l e on the i r facts.

Unlike Kobe t h e c r o s s - l i c e n s e e s i n t h i s case are nonexc lus ive and not

ass igned t o a s i n g l e c o r p o r a t e e n t i t y which, i n Kobe, had practically

a b s o l u t e c o n t r o l over l i c e n s i n g and pr ic ing . The e x t e n s i v e nonuse o f

and/or n o n l i c e n s i n g t o t h i r d parties o f a growing body o f p a t e n t s over a

12 year per iod were persuas ive f a c t o r s t o t h e cour t .

i n t h e i n s t a n t case. Also, i n Kobe t h e r e was no a n a l y s i s o f t h e Dempsey

pump p r i o r t o t h e f i l i n g o f t h e infringement case, whereas h e r e t h e r e was

a p r e - f i l i n g a n a l y s i s made which l e d t o a c o n c l u s i o n o f infringement as t o

each o f t h e p a t e n t s claimed i n t h e complaint. (TCX 236, 335, 336, 475) .

I n view o f these critical f a c t u a l d i f f e r e n c e s , I cannot conclude on t h e

-

-'

-

They have no parallel

-

I .

b a s i s o f - Kobe t h a t complafnants here should be denied re l ie f , as was

Kobe, because o f t h e ev ident monopol i s t i c purpose o f Kobe's c o r p o r a t e a

p a t e n t pool arrangement.

Another case r e l i e d on by Viscofan i s United States V. S i n g e r Manu-

f a c t u r i n g Co., 374 U.S. 174 (1963) , which I a l s o f i n d t o be inappos i te .

In S i n g e r , a p a t e n t c r o s s - l i c e n s i n g agreement between S i n g e r and two

competing European producers o f sewing machines was e s t a b l i s h e d e s s e n t i a l l y

t o more e f f e c t i v e l y p r o t e c t t h e i r markets from i n f r i n g i n g J a p a n e s e d e

sewing machines.

f o r t h e express purpose o f faciAitating more e f f e c t i v e enforcement of t h e

patent a g a i n s t Japanese compet i t ion i n t h e United S t a t e s .

One of t h e European firms ass igned a key p a t e n t t o Singer

33 1

The Supreme Court found an i l l e g a l ' * o v e r a l l comon design" t o e l i m i n a t e

Japanese competit ion.

f i n d i n g t h a t t h e assignment o f the key p a t e n t t o S i n g e r could not have been

T h i s holding was based , i n p a r t , on t h e Court's

f o r t h e purpose o f r e s o l v i n g p a t e n t d i s p u t e s , s i n c e a previous license of

t h e key p a t e n t had assured Singer t h a t it could produce and se l l i t s

machines. - Id. a t 195.

f a c t o r " i n t h e assignment o f the key patent to S i n g e r was t h e d e s t r u c t i o n

Accordingly, t h e Court found t h a t t h e " c o n t r o l l i n g

o f " the Japanese sale o f i n f r i n g i n g machines i n t h e United S t a t e s by

p lac ing t h e patent i n S i n g e r ' s hands, t h e better t o ach ieve this r e s u l t . "

The Court f u r t h e r h e l d t h a t S inger ' s i n i t i a t i o n o f a S e c t i o n 337 s u i t

before t h e U.S. T a r i f f Commission seek ing e x c l u s i o n of t h e Japanese sewing

machines was p a r t of t h e same i l l ega l scheme t o suppress Japanese sewing

machine compet i t ion i n t h e United States.

I

The facts i n t h e case at bar are clearly d i s t i n g u i s h a b l e from t h o s e

i n S inger .

i n S i n g e r , t h e c r o s s - l i c e n s i n g o f t h e p a t e n t s between complainants,

as p r e v i o u s l y d i s c u s s e d , were e n t e r e d i n t o f o r t h e most p a r t t o serve a

legitimate and genuine d i s p u t e s e t t l e m e n t o r avoidance purpose, such as

re 'solving b lock ing p a t e n t s i t u a t i o n s , r a t h e r than explicitly o r i m p l i c i t l y

t o d e s t r o y p a r t i c u l a r competitors.

d i f f e r e n c e , among o t h e r s , I f i n d no c o n t r o l l i n g precedent i n S inger for

fair ly dec id ing Viscofan ' s p a t e n t misuse d e f e n s e here.

Unlike t h e a n t i c o m p e t i t i v e purpose o f t h e key patent assignment

On t h e b a s i s o f this critical f a c t u a l

F ina l ly , t h e q u e s t i o n ariFes whether, q u i t e apart from the Sherman

A c t , t h e u n f a i r methods o f compet i t ion p r o v i s i o n o f S 337 can be v i o l a t e d

by n o n c o l l u s i v e , nonpredatory and independent conduct o f a n o n a r t i f i c ia l

33 2

n a t u r e , i f it r e s u l t s i n a s u b s t a n t i a l l e s s e n i n g o f compet i t ion , as a l l e g e d

by Viscofan. Although Viscofan does not d i r e c t l y raise this q u e s t i o n and

has n o t , i n my o p i n i o n , shown t h a t t h e complainants' conduct has substan-

t i a l l y l e s s e n e d c a n p e t i t i o n i n t h e s k i n l e s s sausage c a s i n g i n d u s t r y , some

comments on t h i s r e l e v a n t ques t ion seem warranted.

My compass i n t h i s matter is

DuPont V. F.T.C., 729 F.2d 128, wherein t h e Second C i r c u i t addressed t h e

same q u e s t i o n w i t h respect t o S 5 o f t h e F e d e r a l Trade Commission A c t , 15

U.S.C. S 45(c). This s e c t i o n i s c l o s e l y related t o S 337 o f t h e Tariff A c t

16/ o f 1930, as amended.-

The F,T.C. case involved t h e two largest manufacturers o f lead a n t i - d

knock g a s o l i n e a d d i t i v e s who were accused o f v i o l a t i n g S 5 by having

independently engaged at d i f f e r e n t times i n t h r e e bus iness practices

t h a t were n e i t h e r r e s t r i c t i v e , predatory , nor adopted f o r t h e purpose of

r e s t r a i n i n g cornpetition. These practices included: (1) t h e sale o f t h e

product at a d e l i v e r e d price, i n c l u d i n g t r a n s p o r t a t i o n c o s t s ; (2) two firms

g i v i n g extra advance n o t i c e o f price i n c r e a s e s , o v e r and above 30 days

provided by c o n t r a c t ; and (3 ) use by t h e same two firms o f a "most favored

nat ion" c l a u s e under which t h e seller promised t h a t no customer would be

charged a h i g h e r price than o t h e r customers.

Recognizing t h a t i t was d e a l i n g w i t h an o l i g o p o l i s t i c i n d u s t r y , t h e

c o u r t noted :

-I

- 16/ S e c t i o n 5 o f t h e F.T.C. Act provides i n p e r t i n e n t p a r t :

Unfair methods o f compet i t ion i n o r a f f e c t i n g commerce, and u n f a i r or decept ive acts o r practices i n o r a f f e c t i n g cammerc.e, are d e c l a r e d unlawful. 15 U.S.C. S 45(a ) ( l ) .

The term " u n f a i r " is an e l u s i v e c o n c e p t , o f t e n dependent upon t h e eye o f the beholder. between conduct t h a t i s a n t i c o m p e t i t i v e and l e g i t i m a t e conduct t h a t has an impact on competit ion. Lessening of compet i t ion i s not t h e s u b s t a n t i a l equiva lent of u n f a i r methods o f cornpetition. S e c t i o n 5 i s aimed at conduct, n o t a t t h e result o f such conduct , even though the l a t ter ' i s u s u a l l y a r e l e v a n t f a c t o r i n determining whether t h e cha l lenged conduct i s "unfa i r . "

A l i n e must ... be drawn

(729 F.2d at 138). I n o t h e r words, t h e Court was concerned t h a t t h e

f o n n u l a t l o n o f standards f o r determining t h e meaning o f " u n f a i r " w i t h i n t h e

terms o f 5 " d i s c r i m i ~ i a t e between normally accepted bus iness behavior and

conduct t h a t i s unreasonable o r unacceptable." Seeking t o provide "worlsable

rules o f law" t o t h e F.T.C. f o r a d m l d s t r a t l o n o f S 5, t h e Court ruled:

In our view, b e f o r e b u s i n e s s conduct i n an o l i g o p o l i s t i c i n d u s t r y may be l a b e l l e d " u n f a i r " w i t h i n t h e meaning o f S 5 a minimum standard demands t h a t , a b s e n t a tacit agreement, a t least some i n d i c i a o f oppress iveness must exist such as (1) evidence o f a n t i c o m p e t i t i v e i n t e n t o r purpose on t h e p a r t o f the purchaser charged, o r ( 2 ) t h e absence o f an independent l e g i t i m a t e bus iness reason f o r i t s conduct. If, f o r i n s t a n c e , a seller's conduct, even absent I d e n t i c a l behavior on t h e p a r t o f i t s c o m p e t i t o r s , i s c o n t r a r y t o i t s independent self- i n t e r e s t , that circumstance would i n d i c a t e t h a t t h e b u s i n e s s p r a c t i c e i s " u n f a i r " w i t h i n t h e meaning o f s 5.

Id. a t 139-140. - Applying t h i s standard t o t h e facts i n F.T.C., t h e Court found, as

I f ind i n t h e present case, no evidence o f c o l l u s i v e , c o e r c i v e o r predatory

conduct. It f u r t h e r found no s u b s t a n t i a l evidence o f record " t h a t t h e

cha l lenged p r a c t i c e s s i g n i f i c a ~ l y l e s s e n e d compet i t ion i n t h e ant iknock

i n d u s t r y or t h a t t h e e l i m i n a t i o n o f t h o s e practices would improve competition."

By analogous r e a s o n i n g , I f i n d i n t h e p r e s e n t record no s u b s t a n t i a l evidence

o f c o l l u s i v e , c o e r c i v e , o r predatory conduct on t h e p a r t o f complainants. 'c

334

Nor do I find any ev idence t h a t i n the a c t i o n s complained o f , c m p l a i n a n t e

e v e r acted c o n t r a r y t o t h e i r independent s e l f - i n t e r e s t . It also has not been

shown t h a t t h e cha l lenged practices s i g n i f i c a n t l y l e s s e n e d competit ion i n the

skinless sausage casing i n d u s t r y o r t h a t t h e e l i m i n a t i o n o f t h o s e practices would

improve competit ion.

Accordingly, I conclude that V i s c o f a n has failed t o e u e t a i n i t s burden

o f proving i t s a l l e g e d a f f i r m a t i v e d e f e n s e s , based on t h e e q u i t a b l e d o c t r i n e s

o f unclean hands and p a t e n t misuse.

335

Importation and Sale

Pursuant t o Viscofan ' s 1983 c o n t r a c t wi th Hygrade, Viscofan has

shipped approximately cases o f skinless sausage c a s i n g s t o t h e United

States t o Hygrade's Brechteen Div is ion . (F indings o f F a c t 702-705) . T h i s

q u a n t i t y of c a s i n g s has a commercial v a l u e o f about . (Finding of

F a c t 7 0 6 ) . Under t h e terms of t h i s c o n t r a c t , Brechteen used t h i s shipment

from V i s c o f a n f o r t e s t i n g purposes, although t h e f r a n k f u r t e r s manufactured

as a r e s u l t of t h e s e tests had a commercial v a l u e of about . (Findings o f Fact 707-708)

S i n c e Brechteen was s o l d by Hygrade t o Natur in , t o g e t h e r w i t h t h e

c o n t r a c t w i t h V i s c o f a n , i t i s a l l e g e d t h a t Eygrade has no remaining i n v e n t o r y

o f V i s c o f a n c a s i n g s . (See Pending Motions, s u p r a , pp. 7 - 8 ) . F u r t h e r ,

Viecofan has v o l u n t a r i l y agreed not to import a d d i t i o n a l q u a n t i t i e s o f

I

- casing pending t h e outcome o f t h i s i n v e s t i g a t i o n . (Findings of Fact

816-818) .

336

Domestic Industry

I n o r d e r t o prove a v i o l a t i o n of I 3 3 7 , t h e complainant must e s t a b l i s h

t h a t t h e a l l e g e d u n f a i r methods o f competit ion have t h e effect o r tendency

“ t o d e s t r o y o r s u b s t a n t i a l l y i n j u r e an i n d u s t r y , e f f i c i e n t l y and economically

operated In t h e United S t a t e s . . .” 19 C.F.R. I 1337(a).

Inv. No. 337-TA-148

When t h e u n f a i r acts o r methods o f competit ion a l l e g e d under I 337 are

based on t h e infringement o f patent r i g h t s , t h e Commission has customarLly

defined t h e domestic industry as c o n s i s t i n g o f t h e domestic operat ions o f

t h e patentee and any o f i t s l i c e n s e e s devoted t o t h e e x p l o i t a t i o n of

t h e teachings o f t h e patent at i s s u e which i s t h e target o f t h e u n f a i r acts fl

o r practices. C e r t a i n Molded-In Sandwich Panel I n s e r t s and Methods f o r

t h e i r Manufacture, Inv. No. 337-TA-99 (1982) (Sandwich Panel I n s e r t s ) ;

C e r t a i n Methods f o r Extruding P l a s t i c Tubing, Inv. No. 337-TA-110, 218

U.S.P.Q. 348 (1982) (Plastic Tubing); C e r t a i n S l i d e Fastener S t r i n g e r s ,

Inv. No. 337-TA-85, 216 U.S.P.Q. 907 (1981) ; Trade Reform Act o f 1973:

Report o f t h e House Committee on Ways and Means, E. Rep. No. 93-571 at

7 8 , 93rd Cong. 1 s t Sese. (1973). E x p l o i t a t i o n of patent r i g h t s may include

domestic production and manufacture, development, servicing, l i c e n s i n g , and

sale o f t h e patented product. Plastic Tubing, supra; Sandwich Panel

I n s e r t s , supra; C e r t a i n Spring Assemblies and Components Thereof and

Methods f o r T h e i r Manufacture, Inv. No. 337-TA-88, 216 U.S.P.Q. 225 (1981)

(Spring Assemblies) .

337

In t h e present i n v e s t i g a t i o n , Teepak i s t h e owner o f the '484 patent

and has l i c e n s e d t h e use of s a i d p a t e n t t o Union Carbide. Union Carbide i s

t h e s o l e domestic l i c e n s e e under t h e '484 p a t e n t .

Carbide practice t h e '484 p a t e n t i n t h e United S t a t e s . (Finding o f F a c t

709 , 710).

Both Teepak and Union

Teepak

. Teepak's bus iness i s comprised o f t h e manufacture, d i s t r i b u t i o n and

eale o f v a r i o u s types o f meat c a s i n g s i n c l u d i n g s k i n l e s s sausage c a s i n g s ,

fhe s u b j e c t of t h e present i n v e s t i g a t i o n . (Finding o f F a c t 3). Teepak

employs approximately persons , of which approximately are production

workers. (Finding o f F a c t 712). d percent o f t h o s e production

workers, approximately , are engaged i n t h e manufacture o f s k i n l e s s

sausage c a s i n g s . (Finding o f F a c t 712). Teepak manufactures i t s l i n e o f

s k i n l e s s sausage c a s i n g s at i t s D a n v i l l e , I l l i n o i s f a c i l i t y . (Finding o f

F a c t 741). Within t h i s f a c i l i t y , approximately square f ee t ,

p e r c e n t , are devoted t o t h e manufacture o f s k i n l e s s sausage

cas ings . (Finding of F a c t 711) . Teepak mainta ins s e r v i c e center/warehouses

a t v a r i o u s l o c a t i o n s i n t h e United S t a t e s . (Finding o f F a c t 714). Teepak's

corporate headquarters and sales d i v i s i o n are l o c a t e d i n Chicago, I l l i n o i s .

(Finding o f F a c t 715).

Based on t h e evidence o f r e c o r d , I f i n d t h a t a domestic industry

exists which i s colrprised, in-art, o f t h o s e p o r t i o n s o f Teepak's domestic

fac i l i t ies devoted t o t h e manufacture, d i s t r i b u t i o n and sale o f s k i n l e s s

sausage c a s i n g s

338

Union Carbide

As t h e result o f a settlement agreement reached between Teepak and

Union Carbide i n 1967, Union Carbide obtained a license under t h e '484

patent . P r e s e n t l y , Union Carbide i s t h e s o l e

domest ic l i c e n s e e under t h e '484 patent . (Finding o f F a c t 710). The

(Finding of F a c t 710).

p r o p r i e t y o f inc luding t h e domestic opera t ions o f Union Carbide in t h e

d e f i n i t i o n o f t h e domestic industry in patent-based I 337 proceedings

has been e s t a b l i s h e d .

I n t e r n a t i o n a l Trade Commission, 717 F.2d 1360, 1371-72 (Fed. C i r . 1983)

(Schaper) and cases c i t e d t h e r e i n . Consequently, Union Carbide, as a

domest ic l i c e n s e e , i s p a r t o f t h e r e l e v a n t domestic industry f o r t h e

S e e , e.g., Schaper Manufacturing Co. V . U.S.

manufacture, d i s t r i b u t i o n , and sale o f skinless sausage c a s i n g s manu-

f a c t u r e d i n accordance wi th t h e '484 patent .

Union Carbide mainta ins f ive f a c i l i t i e s in t h e United S t a t e s f o r t h e

product ion and o r f i n i s h i n g of s k i n l e s s sausage cas ings . (F indings o f F a c t

716-718). The headquarters o f Union Carbide's F i lms Packaging D i v i s i o n i s

l o c a t e d i n Chicago, Illinois.

Carbide's f irst e x t r u s i o n f a c i l i t y c o n s t r u c t e d in 1934.

This c i te i s a l s o t h e l o c a t i o n o f Union

(Finding o f F a c t

717).

t h e United S t a t e s , f o u r o f which are l o c a t e d at i t s manufacturing fac i l i t i es .

I n a d d i t i o n , Union Carbide mainta ins e i g h t service centers throughout

(,Finding o f Fact 717). Union Carbide d i s t r i b u t e s i t s product l i n e through

i t s senrice centers.

d i s t r i b u t i o n p o i n t s f o r skinless sausage c a s i n g s has enabled Union Carbide

t o reduce shipping time s i g n i f i c a n t l y . (Finding o f F a c t 748).

(Finding of F a c t 748). The u s e o f t h e s e c e n t e r s as

Union Carbide u t i l i z e s the most up t o d a t e machinery and equipment i n

i t s manufacturing fac i l i t ies f o r t h e production o f s k i n l e s s sausage cas ings .

339

(Finding of F a c t 7 3 4 ) . Over t h e y e a r s , Union Carbide has continued t o

modernize and expand i t s o l d e r faci l i t ies . (Finding of F a c t 745-746) .

As a result o f t h e s e e f f o r t s , Union Carbide has been a b l e t o increase

production c a p a c i t y . P r e s e n t l y , Union Carbide is capable o f producing

pounds o f s k i n l e s s sausage c a s i n g s annually. (Finding o f F a c t 7 2 8 ,

741-743) . Union Carbide spends m i l l i o n s o f d o l l a r s annual ly on r e s e a r c h and

development, q u a l i t y c o n t r o l and c a p i t a l equipment and machinery. (Finding

o f F a c t 7 3 6 , 7 4 0 , 745-746) . Union Carbide's f i x e d investment for i t s

c a s i n g b u s i n e s s exceeded as o f December 1982. (Pinding o f Fact

7 3 3 , The es t imated replacement c o s t o f Union Carbide's faci l i t ies and

, equipment r e l a t e d t o t h e manufacture o f c a s i n g s exceeds . (Finding o f F a c t 7 3 5 ) . Although t h e s e f i g u r e s do not relate e x c l u s i v e l y

t o t h e production o f s k i n l e s s sausage c a s i n g s , t h e y are, n e v e r t h e l e s s ,

r e l e v a n t and thus warrant i n c l u s i o n i n t h e d e f i n i t i o n o f t h e domestic

industry.

S e c t i o n s f o r Continuous Production o f Paper and Components T h e r e o f , Inv.

S e e , e .g. , C e r t a i n Headboxes and Papermaking Machine Formlng

No. 337-TA-82, RD at 109 ( 1 9 8 1 ) (Headboxes),

I n sum, t h e domestic industry i n Inv. No. 337-TA-148 i s comprised

o f t h e domestic fac i l i t ies o f Teepak and Union Carbide devoted t o t h e

manufacture, d i s t r i b u t i o n , and sale o f skinless sausage c a s i n g s manu-

f a c t u r e d i n accordance wi th t h e teachings of t h e ' 4 8 4 patent . -

340

Inv. No. 337-TA-169

When t h e u n f a i r acts o r methods o f compet i t ion a l l e g e d under 5 3 3 1 are

based on t h e misappropr ia t ion o f t r a d e secrets, t h e domestic i n d u s t r y i s

d e f i n e d as c o n s i s t i n g o f t h a t p o r t i o n o f complainant's domestic o p e r a t i o n s

devoted t o u t i l i z a t i o n o f t h e c o n f i d e n t i a l and p r o p r i e t a r y technology at

i s s u e which i s t h e target of the u n f a i r acts o r practices. S e e , e.g.,

Schaper, 717 F.2d 1360; Copper Rod, s u p r a , RD a t 9 4 ; C e r t a i n Ultra-Microtome

Freezing Attachments, Inv. No. 337-TA-10, 195 U.S.P.Q. 653 (1976).

I n t h e p r e s e n t i n v e s t i g a t i o n , Union Carbide c l a i m s as a t r a d e secret

t h e o v e r a l l i n t e g r a t e d sausage casing manufacturing o p e r a t i o n as p r a c t i c e d

i n i t s s e v e r a l p l a n t s throughout t h e United S t a t e s . The specific t r a d e

secrets at i s s u e i n c l u d e Union Carbide's: (1) c a r r y o v e r or tower;

(2 ) e x t r u s i o n nozz le and mandrel assembly; (3) c h e m i c a l , q u a l i t y c o n t r o l

and manufacturing standards and s p e c i f i c a t i o n s ; (4) o v e r a l l s h f r r i n g

machine c o n f i g u r a t i o n ; (5) c o n s t r u c t i o n o f t h e commercial v e r s i o n o f t h e

shirring head a s s e m b l i e s ; (6) e x t e r n a l c o n f i g u r a t i o n and c o n s t r u c t i o n o f

t h e s h i r r i n g mandrels; and ( 7 ) s h i r r i n g mandrel i n t e r n a l spray system.

(See - Opinion, Misappropriation o f Trade S e c r e t s , supra).

Union Carbide contends t h a t no o t h e r domestic producer u t i l i z e s i t s

c o n f i d e n t i a l and p r o p r i e t a r y technology , and that as such t h e domestic

i n d u s t r y c o n s i s t s o f t h a t p o r t i o n o f i t s b u s i n e s s i n t h e United S t a t e s

which i s using t h e confidential-and p r o p r i e t a r y technology at i s s u e .

(Union Carbide PB, p. 17).

The r e c o r d r e v e a l s that although t h e 1967 Agreement between Teepak

and Union Carbide included p r o v i s i o n f o r exchange o f know-how, t h a t t h e

34 1

know-how exchange was never f u l l y c a r r i e d o u t , and t h a t Teepak e s s e n t i a l l y

did not u s e t h e know-how r e c e i v e d from Union Carbide.

533-538, 549).

domestic company i s making use o f t h e t r a d e secrets a t i s s u e . Thus, f o r

purposes o f t h e t r a d e secret phase of t h i s i n v e s t i g a t i o n , t h e domestic

industry i s def ined t o inc lude o n l y t h e domest ic opera t ions o f Union

Carbide's Films-Packaging D i v i s i o n u t i l i z i n g t h e t r a d e secrets a t i s s u e .

(F indings o f F a c t

There i s nothing on t h e record t o i n d i c a t e t h a t any o t h e r

Viscofan asserts t h s t many o f t h e t r a d e secrets a l l e g e d l y misappro-

p r i a t e d from Union Carbide's s u b s i d i a r y , V i s c o r a , are not i n use i n t h e

United S t a t e e , e i t h e r because o f c e r t a i n d i f f e r e n c e s i n t h e end product

between Europe and t h e United S t a t e s which affect t h e manufacturing p r o c e s s ,

' or because of changes i n standards s i n c e t h e time of t h e a l l e g e d misappro-

p r i a t i o n . To t h e e x t e n t ' t h a t t h e s e arguments bear on t h e e x i s t e n c e o f each

t r a d e secret, t h e y have been cons idered , i n t h e c o n s i d e r a t i o n o f t h e

appropr ia te t r a d e secret, supra.

It is e s t a b l i s h e d on t h i s record t h a t V i s c o r a r e c e i v e d e s s e n t i a l l y

a l l o f i t s sausage c a s i n g technology from Union Carbide, inc luding machinery

and drawings, and has s u b s t a n t i a l l y maintained i t i n t h e same f a s h i o n as

Union Carbide's domest ic technology. (F indings o f F a c t 719-727). Although

i n some i n s t a n c e s Viscora h a s made adjustments i n t h e standards r e c e i v e d ,

i n no i n a t a n c e can it b e s a i d t h a t t h e adjustment was not i n i t i a l l y based

on t h e fundamental technology r e c e i v e d from t h e United S t a t e s .

The e s s e n t i a l element t o be considered i n t h i s r e s p e c t i s t h e

development o f s tandards and s F e c i f i c a t i o n s over time, which r e s u l t s i n

34 2

p r o p r i e t y in format ion , t h e secrecy o f which c o n f e r s a compet i t ive advantage

on t h e trade secret owner.

dynamic, i n t h a t adjustments must be made t o accommodate customer needs, or

changes i n o t h e r v a r i a b l e s .

Many o f t h e s e standards and s p e c i f i c a t i o n s are

The inherent dynamics o f t h i s process cannot

be s a i d t o result i n a f o r f e i t u r e o f t h e earlier s tandards , on which any

a l t e r a t i o n s must o f need be based.

I n t h e present c ircumstances it i s clear t h t t h e technology mis-

appropriated from V i s c o r a i s i n e s s e n c e t h e same technology i n use i n t h e

United S t a t e s , and t h a t this technology was o r i g i n a t e d i n t h e United States.

Thus, I f i n d t h a t t h e r e i s a domestic industry f o r t h e t r a d e secrets a t

i s s u e , and t h a t t h i s industry i s s u b s t a n t i a l l y c o e x t e n s i v e w i t h the

I ddescr ipt ion o f Union Carbide's opera t ions already d e s c r i b e d i n connect ion

wi th t h e '484 patent . .

343

E f f i c i e n t and Economic Operation

I n o r d e r t o p r e v a i l under 5 3 3 7 , complainant must e s t a b l i s h t h a t the

r e l e v a n t domest ic industry i s e f f i c i e n t l y and economical ly operated. The

t r a d i t i o n a l g u i d e l i n e s set f o r t h by t h e Commission t o assess e f f i c i e n t

and economic o p e r a t i o n inc lude : t h e use o f modern equipment; e f f e c t i v e

q u a l i t y c o n t r o l programs; p r o f i t a b i l i t y o f t h e r e l e v a n t product l i n e ;

increased p r o d u c t i v i t y ; and expenditures f o r r e s e a r c h and development.

Spring Assemblies , supra ; C e r t a i n Heavy Duty S t a p l e Gun Tackers , Inv. No.

337-TA-137 (1983) ; C e r t a i n S t a b i l i z e d Hull U n i t s and Components Thereof ,

Inv. No. 337-TA-103 ( 1 9 8 2 ) ; C e r t a i n Coin Operated Audio-visual Games and

Components Thereof , Inv. No. 337-TA-105, 216 U.S.P.Q. 1106 (1982) .

Teepak

I n r e c e n t years Teepak has implemented a number o f m o d i f i c a t i o n s and

improvements i n an e f f o r t t o make i t s o p e r a t i o n s more economic and more

e f f i c i e n t . Teepak has an e s t a b l i s h e d h i s t o r y o f maintaining i t s manufac-

t u r i n g f a c i l i t i e s i n good c o n d i t i o n and has devoted adequate funds t o

capital spending . I n 1 9 8 3 , Teepak spent on capital equipment f o r i t s D a n v i l l e ,

I l l i n o i s product ion faci l i ty. (Finding o f F a c t 756). Likewise , i n 1984 ,

Teepak estimates t h a t it w i l l spend i n excess o f on capital

equipment and machinery. (Finding o f Fact 756). Through s u b s t a n t i a l

expenditures f o r capital equipment o v e r t h e y e a r s , Teepak has i n c r e a s e d

i t s p r o d u c t i v i t y by percent s i n c e 1964. (Finding o f Fact 763). _ -

P r e s e n t l y , Teepak i s capable o f producing meters of skin-

less sausage c a s i n g s annually. (Finding of Fact 728). I n 1983 , a c t u a l

344

production o f skinless sausage c a s i n g s was meters which

represented approximately

729). O f t h i s number, Teepak s o l d meters, represent ing a

market s h a r e of percent . (Finding o f F a c t 730). The d o l l a r value o f

t h o s e s k i n l e s s sausage c a s i n g s s o l d in 1983 exceeded . (Finding of F a c t 730). Gross p r o f i t s from t h e sale of s k i n l e s s sausage

c a s i n g s f o r t h e f i r s t h a l f o f 1983 were (Finding o f F a c t

percent o f capac i ty . (Finding o f F a c t

733) . A comparison o f t h e evidence o f record r e v e a l s t h a t domestic sales

s i n c e 1981 have been c o n s i s t e n t l y less than domestic production. T h i s

d i f f e r e n c e i s accounted f o r most ly by expor ts and t o a lesser e x t e n t

d by changes i n inventory. (Finding o f F a c t 778). The d i f f e r e n c e between

c a p a c i t y and a c t u a l production and sale c a n be a t t r i b u t e d t o a genera l

d e c l i n e i n t h e domestic production o f h o t dogs as a r e s u l t o f t h e growing

p u b l i c concern over a d d i t i v e s in hot dogs. (Finding of F a c t 779).

P r i o r t o 1970, Teepak made a l l o f i t s c e l l u l o s e c a s i n g s from

(Finding o f F a c t 759) .

S i n c e 1981, Teepak's market s h a r e has

. (Finding o f F a c t 760).

percent o f sales

t o percent . (Finding o f F a c t 730).

345

The record r e v e a l s cont inuous e f f o r t s , over t h e y e a r s , on t h e p a r t o f

Teepak t o improve t h e q u a l i t y o f i t s l i n e o f s k i n l e s s sausage c a s i n g s . I n

1982, Teepak completed a program t o reduce breakage and improve per-

formance o f t h e i r c a s i n g i n meat packer ' s p l a n t s . As a r e s u l t o f t h i s

program t h e number o f c a s i n g d e f e c t s has been reduced from o f

s t r a n d s t e s t e d t o . (Finding o f F a c t 766). During t h e per iod

1981 t o June 1983, Teepak spent i n excess o f f o r r e s e a r c h and

development. (F inding o f F a c t 711).

Through t h e use o f , Teepak has been a b l e t o more

a c c u r a t e l y assess t h e q u a l $ t y o f i t s cas ings . (F indings o f F a c t 768-769).

Teepak' s computerized

& . (Finding

o f Fact 770).

problem of producing hot dogs which are e i t h e r under o r overweight.

(F inding o f F a c t 767). The importance o f ach iev ing i s magnified

when cons ider ing t h e p r o f i t margin o f meat s tuf fem. -

The uni formi ty o f c a s i n g width is necessary t o avoid t h e

17/

Teepak d i s t r i b u t e s i t s l i n e o f s k i n l e s s sausage c a s i n g s through i t s

four r e g i o n a l service centerfwarehouses. (F indings o f F a c t 714, 772). The

u s e o f s e r v i c e center/warehouses as a d i s t r i b u t i o n point enables l a r g e r

shipments t o be s e n t i n bulk a t lower f r e i g h t rates t o p o i n t s r e l a t i v e l y

close t o t h e customer. (Finding o f F a c t 772).

. (Finding o f Fact 773-774).

- 17/ Meatpackers' p r o f i t margins g e n e r a l l y amount t o o n l y a small percentage on sales p r i c e s , and c o s t o f t h e meat product i s an important p a r t o f t h e i r t o t a l cost. I n 1979, median n e t p r o f i t s on net sales were 2.28 percent f o r a sample o f 144 sausage and prepared meat p l a n t s (SIC Code 2013). Dun & B r a d s t r e e t ' s 1980 Key Bus iness R a t i o s , p. 18.

346

Thus, t h e r e c o r d i s replete with i n s t a n c e s o f Teepak's e f f o r t s

t o improve t h e q u a l i t y o f i t s product l i n e , t h e p r o d u c t i v i t y of i t s

manufacturing and d i s t r i b u t i o n f a c i l i t i e s , and t h e o v e r a l l e f f i c i e n c y o f

i t s domestic o p e r a t i o n s .

Union Carbide

One i n d i c a t i o n of t h e e f f i c i e n c y o f Union Carbide's domestic o p e r a t i o n

i s t h a t it has always competed s u c c e s s f u l l y a g a i n s t Teepak and s t i l l

r e t a i n s t h e m a j o r i t y share o f t h e United S t a t e s market. (Finding of F a c t

730).

Union Carbide o p e r a t e s f i v e p l a n t s i n t h e United S t a t e s f o r t h e

production and/or f i n i s h i n g of s k i n l e s s sausage c a s i n g s . (Finding o f F a c t d.

716) . Within each f a c i l i t y t h e mos't modern, up-to-date automated equipment

i s u t i l i z e d f o r t h e production o f s k i n l e s s sausage c a s i n g s . (Finding o f

F a c t 734). As o f 1982, Union Carbide's f i x e d investment f o r i t s c a s i n g

b u s i n e s s exceeded . (Finding o f F a c t 735).

Union Carbide c o n t i n u e s t o i n v e s t s u b s t a n t i a l l y i n t h e production of

skinless sausage c a s i n g s . Over t h e last t e n y e a r s , expendi tures f o r

r e s e a r c h and development have exceeded . (Finding o f F a c t 736).

I n 1983 a l o n e , Union Carbide spent

(Finding o f F a c t 736).

and technology has made i t easier f o r t h e meat products i n d u s t r y t o

reduce t h e i r c o s t s through a u t g s t i o n . (Finding o f F a c t 737). These

e f f o r t s not o n l y b e n e f i t Union Carbide but also i t s wholly owned s u b s i d i a r i e s

which produce s k i n l e s s sausage c a s i n g s i n o t h e r c o u n t r i e s .

F a c t 720-721, 725, 727).

f o r r e s e a r c h and development.

Union Carbide's e f f o r t s t o improve i t s equipment

(Finding of

34 7

Union Carbide has continued t o update and expand its f a c i l i t i e s

over t h e years . During t h e per iod 1965-1975, Union Carbide replaced a l l

of t h e e x t r u s i o n equipment i n i t s Chicago, Illinois f a c i l i t y , o r i g i n d a y

const ruc ted i n 1934. (Finding or' F a c t 745). SimiarPy, Union Carbide's

Loudon, Tennessee f a c i l i t y , completed i n 1957, has been updated and

expanded.

z a t i o n e f f o r t s , i t has been a b l e t o improve p r o d u c t i v i t y and i n c r e a s e i t s

(Finding o f F a c t 746). As a r e s u l t o f Union Carbide's moderni-

production capacity. (Findings o f F a c t - 7 4 1 , 743).- . - _ - _ _

Union Carbide i s p r e s e n t l y capable o f producing pounds o f

When converted t o meters, t h i s q u a n t i t y skinless sausage casings annually.

r e p r e s e n t s an annual c a p a c i t y o f approximately meters.

(Findtng o f F a c t 728).

meters o f skinless sausage c a s i n g s which represented approximately

percent o f c a p a c i t y . (Finding o f F a c t 729). O f t h i s amount, Union

Carbide s o l d meters, r e p r e s e n t i n g a market share of

percent .

sausage c a s i n g s s o l d exceeded . (Finding o f F a c t 730). I n

1982, Union Carbide's ne t p r o f i t b e f o r e taxes was approximately .

, I n 1983, Union Carbide produced

(Finding o f F a c t 730). The d o l l a r va lue o f those s k i n l e s s

In 1983, n e t p r o f i t b e f o r e taxes was # . The apparent d e c l i n e

i n p r o f i t s from 1982 t o 1983 i s a t t r i b u t a b l e t o a change i n Union Carbide's

accounting methods wi th r e s p e c t t o a l l o c a t i o n o f c o r p o r a t e w i d e i n t e r e s t

expenses. (Finding o f F a c t 732).

I n t h e area o f q u a l i t y c o n t r o l , Union Carbide has e s t a b l i s h e d an

e x t e n s i v e program i n connect ion wi th i t s production of s k i n l e s s sausage

casings. .-

Each production f a c i l i t y mainta ins i t s own q u a l i t y c o n t r o l

program i n a d d i t i o n t o t h e c e n t r a l q u a l i t y c o n t r o l group l o c a t e d

348

at Union Carbide's Chicago headquarters. (F indings o f F a c t 738-739). Each

p lant i s required t o test a certain number o f c a s i n g s weekly and t o submit

r e p o r t s d e s c r i b i n g t h e percentage of c a s i n g s t h a t f a l l wi th in t h e q u a l i t y

standards prescr ibed by Union Carbide. (F inding o f F a c t 739). Union

Carbide performs annual ly more than 4 m i l l i o n tests on s k i n l e s s sausage

cas ings . I n 1983, the c o s t o f such t e s t i n g was $3.6 m i l l i o n . (F inding o f

F a c t 7 40).

The s u c c e s s of Union Carbide's F i lms Packaging D i v i s i o n i s due i n p a r t

t o t h e v a r i e t y o f services i t o f f e r s t o i t s customers. Included among

t h e s e s e r v i c e s are p u b l i c r e l a t i o n s campaigns t o promote t h e consumption

o f hot dogs , product innovat ions such as

I and

providing c o n s u l t a n t s t o assist manufacturers i n so lv ing t e c h n o l o g i c a l

problems. (F indings o f F a c t 749-751). I n a d d i t i o n , Union Carbide's Food

S e r v i c e I n s t i t u t e assists customers by developing and improving methods of

sausage and smoked meat production as well as developing new sausage

products. (Finding o f F a c t 752-753).

Union Carbide d i s t r i b u t e s i t s l i n e o f s k i n l e s s sausage c a s i n g s through

v a r i o u s s e r v i c e c e n t e r s throughout t h e United S t a t e s .

747). Union Carbide's d i s t r i b u t i o n network has been h ighly s u c c e s s f u l i n

reducing shipping times. I n 1983, percent o f a l l orders placed

with Union Carbide were shipped t o t h e customer on t h e same day as t h e order

was placed.

(Finding of F a c t

(Finding o f F a c t 748).

Respondent V i s c o f a n , i n i t s pos t hear ing b r i e f has not chal lenged

t h e e x i s t e n c e o f a domestic industry with r e s p e c t t o the industry def ined

349

by e x p l o i t a t i o n of t h e '484 p a t e n t , nor has i t cha l lenged t h e e f f i c i e n t and

ecoaomic o p e r a t i o n o f both Union Carbide's and Teepak's domest ic fac i l i t ies .

I n t h e absence o f such a c h a l l e n g e , I must conclude t h a t Viecofan has

conceded t h e p r e s e n t i s s u e .

Based on t h e evidence of record and t h e absence o f any c h a l l e n g e on

t h e p a r t o f respondent , 1- f i n d t h a t t h e domest ic i n d u s t r y as def ined h e r e i n

is e f f i c i e n t l y and economioal ly operated.

35 0

I n j ury

I n o r d e r t o p r e v a i l i n a 5 337 a c t i o n , complainant must show t h a t t h e

importa t ion and sale o f s k i n l e s s sausage c a s i n g s has " t h e effect o r tendency

... t o d e s t r o y o r s u b s t a n t i a l l y in jurel ' the domestic industry , 19 U.S.C. 0

1337(a). T h i s element r e q u i r e s proof separate and independent from proof o f an

u n f a i r act.

respondent's a l l e g e d u n f a i r acts and t h e i n j u r y s u f f e r e d as a r e s u l t o f such

F u r t h e r , complainant must e s t a b l i s h a c a u s a l r e l a t i o n s h i p between

acts. - Ce-rtaln Sprlng Assemblies and ComponentsThereof -and Methods o f T h e i r

Manufacture, Inv. No. 337-TA-88, at 43-44, 216 U.S.P.Q. 225, 243 (1981) (Spring

Assemblies).

S u b s t a n t i a l I n j u r z

S e v e r a l f a c t o r s are r e l e v a n t t o a determinat ion o f i n j u r y t o t h e

domestic i n d u s t r y , inc luding : (1) l o s t customers; (2) d e c l i n i n g sales;

(3) volume o f imports; (4) decreased production and p r o f i t a b i l i t y ;

(5) l e v e l o f market p e n e t r a t i o n by imports ; and (6) s u b s t a n t i a l f o r e i g n

c a p a c i t y t o i n c r e a s e expor ts . C e r t a i n D r i l l Po int Screws f o r Drywall

C o n s t r u c t i o n , I n v , No. 337-TA-166, a t 18 (1982); Spring Assemblies, s u p r a ,

at. 42-49, 216 U.S.P.Q. a t 242-45; C e r t a i n F l e x i b l e Foam Sandals , Inv. No.

337-TA-47, RD at 4 (1979); C e r t a i n R o l l e r U n i t s , Inv. No. 337-TA-44,

at 10, 208 U.S.P.Q. 141 (1979); C e r t a i n R e c l o s a b l e P l a s t i c Bags, I n v , No.

337-TA-22, 19 U.S.P,Q. 674 (1977) ( R e c l o s a b l e P l a s t i c Bags).

The r e c o r d r e v e a l s t h a t as o f June 1983 Viscofan exported approximately

cases of s k i n l e s s sausage c a s i n g s t o t h e United S t a t e s . (F indings of

F a c t 785, 787). A m a j o r i t y of-those c a s i n g s imported by t h e Brechteen

D i v i s i o n were s o l d t o Hygrade Food Products Corporation. (Finding o f F a c t

351

786). The d o l l a r value o f those c a s i n g s imported 1.8 estimated to exceed

. (Findings o f F a c t 791-792). Although t h e record r e v e a l s t h e

sale o f a d d i t i o n a l imported s k i n l e s s sausage c a s i n g s t o t h e

t h e exact va lue o f those c a s i n g s imported has not been e s t a b l i s h e d .

(Finding of F a c t 790).

I n 1983, sales o f skinless sausage c a s i n g s i n t h e United S t a t e s amounted

t o approximately . (Finding o f Fact 8341.- --In l l g h t o f t h i s -- - _

volume of sales, Viscofan 's importa t ion , through Brechteen , of some

cases of c a s i n g s , valued at approximately , i s de minimis i n

comparison t o t h e total size of t h e market. This minimal volume o f imports,

which were predominantly used f o r t e s t i n g purposes , taken t o g e t h e r wi th

Viscofan 's vo luntary agreement not t o import any a d d i t i o n a l c a s i n g s during

t h e pendency of t h i s i n v e s t i g a t i o n , militates a g a i n s t a f i n d i n g t h a t e i t h e r

domestic industry has s u f f e r e d any present s u b s t a n t i a l i n j u r y as a r e s u l t

o f t h e s e importat ions . (F indings of F a c t 816-818).

352

Tendency t o S u b s t a n t i a l l y I n j u r e

When an assessment o f t h e market i n t h e presence o f t h e accused

imported product demonstrates r e l e v a n t c o n d i t i o n s o r circumstances from

which probable f u t u r e i n j u r y c a n be i n f e r r e d , a tendency t o s u b s t a n t i a l l y

i n j u r e t h e domestic industry has been shown.

Inv. No. 337-TA-45, RD at 24 -( 1979).

may inc lude f o r e i g n c o s t advantage and production capacity, a b i l i t y

o f t h e imported product t o u n d e r s e l l complainant's product, o r s u b s t a n t i a l

C e r t a i n Combination Locks,

Re levant c o n a i t i o n s o r circi imstances I

manufacturing capacity combined wi th t h e i n t e n t i o n t o p e n e t r a t e t h e United

States market. C e r t a i n Methods f o r Extruding Plastic Tubing, Inv. No.

337-TA-110, 218 U.S.P.Q. 348 ( 1 9 8 2 ) ; R e c l o s a b l e P l a s t i c Bags , supra; Panty

I Hose, Tar i f f Commission Pub. No. 471 (1972) . The l e g i s l a t i v e h i s t o r y o f - 5 337 indicates that "[wlhere unfair methods and acts have r e s u l t e d i n

c o n c e i v a b l e l o s s o f sales, a tendency t o s u b s t a n t i a l l y i n j u r e has been

established." Trade Reform A c t o f 1 9 7 3 , Report o f t h e House Comm. on Ways

and Means, H. Rep. No. 93-571, 93rd Cong., 1st Sess., a t 7 8 ( 1 9 7 3 1 , c i t i n g

I n re Von Clem, 108 U.S.P.Q. 371 (C.C.P.A. 1955).

Mfg. Co. V. U.S. I n t e r n a t i o n a l Trade Commission, 219 U.S.P.Q. 9 7 , 102

(C.A.F.C. 1983).

See also Bally/Midway - --

The United States market f o r skinless sausage c a s i n g s i s c h a r a c t e r -

i s t ica l ly mature and s tagnant . T h i s e s s e n t i a l l y f l a t market is due i n p a r t

t o t h e l i m i t e d and already def ined commercial use o f s k i n l e s s sausage

casings. (F indings o f Fact 8365-839) . The demand f o r s k i n l e s s sausage

casings, i tself e x t r a o r d i n a r i l y i n e l a s t i c , i s a f u n c t i o n o f t h e demand

f o r hot dogs. The production o f h o t dogs over

t h e p a s t few years has shown a s teady d e c l i n e as a r e s u l t o f t h e growing

(Finding o f F a c t 840).

353

1 p u b l i c concern over a d a l t f v e s i n hot dogs . (F indings o f Fact 7 7 9 , 837).

lin t h e presence o f such market c o n d i t i o n s , t h e l i k e l i h o o d o f expanding t h e

United States market through sales of Imported s k i n l e s s sausage c a s i n g s i s

highly Improbable. Thus, any sale o f Imported s k i n l e s s sausage c a s i n g s

will be achieved a t - t h e expense of t h e domestic industry . (F indings o f

F a c t 841-843).

o f Viseofan t o p e n e t r a t e and capture a s u b s t a n t i a l p o r t i o n o f t h e United

The evidence o f record r e v e a l s an i n t e n t on t h e p a r t

States market, and t h e c a p a c i t y t o r e a l i z e such an i n t e n t .

- . . -.

The r e c o r d i n d i c a t e s t h a t i n 1982, Viscofan i n c r e a s e d i t s annual

produption capacity by as much as i n preparat ion f o r i t s e n t r y

i n t o t h e United S t a t e s mgrket. (Finding o f Fact 844). It i s es t imated

t h a t p r e s e n t l y , Viscofan i s capable o f producing approximately

meters annual ly and a n t i c i p a t e s i n c r e a s i n g t h a t c a p a c i t y by t h e end o f 4

1984. (Finding o f Fact 844). Viscofan 's present capacltyjwere i t t o be

e n t i r e l y d i r e c t e d t o t h e United S t a t e s market, i s c a p a b l e , of s a t i s f y i n g

approximately percent o f t h e United States market f o r s k i n l e s s sausage

cas ings . (F indings o f F a c t 730, 844, 861). I n t h e absence o f an e x c l u s i o n

o r d e r , Viscofan in tends t o i n c r e a s e i t s annual capacity by as much as

meters. (Finding o f F a c t 861). The r e s o u r c e s necessary t o fund

such an undertaking are a v a i l a b l e t o Viscofan. These resources are der ived

i n part from t h e s u b s t a n t i a l p r o f i t s obtained from t h e sale o f casings i n

o t h e r c o u n t r i e s , i n a d d i t i o n t o t h e

. (Findings o f Fact 845-852).

I n sum, Viscofan has t h e wherewithal to produce a s u b s t a n t i a l q u a n t i t y

of skinless sausage casings for e x p o r t a t i o n t o t h e United S t a t e s and i s

prepared t o expand i ts c u r r e n t production c a p a c i t y f o r t h e purpose of

354

~ _ '

p e n e t r a t i n g t h e United S t a t e s market. As discussed below, Viscofan a l s o

has t h e a b i l i t y t o d i s t r i b u t e such c a s i n g s throughout t h e United S t a t e s ,

I n March o f 1983, Viscofan and Hygrade Food Products Corp. entered

i n t o a n agreement' naming Hygrade's Brechteen D i v i s i o n , one o f t h e leading

domest ic food c a s i n g d i s t r i b u t o r s , as t h e e x c l u s i v e U.S. d i s t r i b u t o r o f

Viscofan ' s l i n e o f s k i n l e s s sausage c a s i n g s . (F inding o f F a c t 782) . The

agreement cal ls f o r t h e production and e x p o r t a t i o n o f between

meters annual ly . (F inding o f F a c t 784) . I n connect ion wi th t h e

sale o f Brechteen t o Naturin/Werk B e c k e r , t h i s agreement was valued a t

Under t h e terms o f t h e agreement, . (Finding o f F a c t 783) .

importa t ion o f V i s c o f a n c a s i n g s was t o commence i n March o f 1983. However,

importa t ion has been postponed pending t h e outcome o f t h e present i n v e s t i -

g a t i o n . (F indings o f F a c t 8 1 0 , 8 1 8 , 820) .

I n 1982,

. I n a d d i t i o n t o t h e importa t ion o f some

o f Viscofan c a s i n g s f o r t e s t i n g purposes ,

cases

(Findings o f F a c t

795-796).

Accounts f o r Union Carbide, and as a r e s u l t has e s t a b l i s h e d numerous

c o n t a c t s i n t h e meatpacking industry . (F inding o f F a c t 804) .

The pres ident o f Brechteen was former ly t h e head o f Nat ional

(Finding o f F a c t 8 1 3 , 830-832). I n any e v e n t , V iscofan in tends t o expor t

i t s product t o t h e United S t a t e s wi th o r without t h e a s s i s t a n c e o f Brechteen.

(Finding o f F a c t 827) . 355

I n preparat ion f o r e n t r y i n t o t h e United S t a t e s market, Viscofan

has r e g i s t e r e d i t s c a s i n g s with t h e Food and Drug Administration.

o f F a c t 823). An a n a l y s i s o f t h e U.S. market prepared by Viscofan p r o j e c t e d

a market penetra t ion o f approximately percent by 1988. (Finding o f

F a c t 829). Brechteen and Viscofan acknowledge a more conservat ive estimate

o f approximately percent U.S. market p e n e t r a t i o n by 1986. (Findings o f

F a c t 825, 830). Brechteen estimates t h a t i t s p r o f i t s f o r t h e d i s t r i b u t i o n

o f imported s k i n l e s s sausage c a s i n g s over a f ive -year per iod w i l l

(F inding

. (Finding o f F a c t 835).

I n sum, t h e p o t e n t i a l and i n c e n t i v e t o capture a s i g n i f i c a n t por t ion

o f t h e domestic industry i s apparent.

o r a t i o n wi th Viscofan have generated widespread i n t e r e s t i n t h e purchase of

imported skinless sausage c a s i n g s and as a r e s u l t Viscofan has e s t a b l i s h e d

s u f f i c i e n t c o n t a c t s i n t h e meatpacking industry t o proceed without any

f u r t h e r a s s i s t a n c e from Brechteen.

The e f f o r t s by Brechteen i n c o l l a b -

The manufacture o f s k i n l e s s sausage c a s i n g s i s a capital i n t e n s i v e

market. Teepak and Union Carbide i n c u r s u b s t a n t i a l f i x e d c o s t s which would

persist even i f t h e i r volume o f sales were t o decrease . (F inding of F a c t

853). A r e l a t i v e l y small decrease i n domest ic sales would have a dispro-

p o r t i o n a t e impact on p r o f i t a b i l i t y .

. (Finding o f F a c t 854).

. (Finding o f F a c t 854,

855) . 356

Another f a c t o r warranting c o n s i d e r a t i o n i s t h e present

The domestic i n d u s t r y i s

p r e s e n t l y operating a t between percent o f capacity. (Finding o f

Fact 856). The sale o f imported e k i n l e s s sausage c a s i n g s would result i n a

(Finding of F a c t 857) . r e d u c t i o n i n domestic capacity u t i l i z a t i o n .

I n l i g h t o f t h e present market c o n d i t i o n s , which are not l i k e l y to-improve- -- - -

due t o the nature o f the market, even a modest p e n e t r a t i o n o f between

percent by Viscofan would have a s u b s t a n t i a l impact on the domestic

industry. (Findings o f Fact 854-860).

A final f a c t o r t o be considered i n determinlng whether a tendency t o

s i b s t a n t i a l l y i n j u r e the domestic i n d u s t r y exists i s the p o t e n t i a l effect

on t h e i n d u s t r y resulting from the'sale o f skinless sausage c a s i n g s produced

i n accordance with t h e teachings o f t h e '484 p a t e n t p r i o r t o i t s e x p i r a t i o n .

See, e.g., Georg ia -Pac i f i c Corp. V. United States Plywood Corp., 166

U.S.P.Q. 235, 242-43 (S.D.N.P. 1970), cert. denied, 404 U.S. 870 (19711, - modified on o t h e r grounds, 446 F.2d 295 (2d C i r . 1971); C e r t a i n Amorphous

- Metal A l l o y s and Amorphous Metal Articles, Inv. No. 337-TA-143, I D at 136

( 1984)

This c o n s o l i d a t e d i n v e s t i g a t i o n i s based on both p a t e n t infringement

and mieappropr ia t ion o f trade secrets, t h u s sugges t ing t h a t u l t i m a t e

c o n s i d e r a t i o n of an appropr ia te remedy w i l l be based on both u n f a i r acts.

Although t h e i s s u e o f remedy i s not a matter b e f o r e t h i s pres iding o f f i c e r ,

t h e timing o f Viscofan's p o t e n t i a l e n t r y i n t o the United States market i n .-

t h e event o f an e x c l u s i o n o r d e r , based on t h e e x p i r a t i o n o f t h e '484

p a t e n t , affects c o n s i d e r a t i o n o f t h e i s s u e o f tendency t o i n j u r e t h e

domestic industry .

35 7

The '484 patent i s sued i n 1969 and w i l l e x p i r e i n 1986. (Finding

of F a c t 29). I n t h e event t h a t any e x c l u s i o n orders were based on t h e

patent a l o n e , Viscofan would be e l i g i b l e t o e n t e r t h e market i n 1986. If

Viscofan were t o e n t e r t h e United S t a t e s market immediately, r a t h e r than i n

1986, t h a t two-year per iod would enable i t t o g a i n a s u b s t a n t i a l market

s h a r e , It has been c a l c u l a t e d t h a t i n a two-year per iod , based on Viscofan ' s

arrangements with Brechteen , i t would b e a b l e t o capture between

percent o f t h e United S t a t e s market. T h i s market s h a r e would be d i r e c t l y

a t t h e expense o f Teepak and Union Carbide.

854, 855, 857-859). It i s est imated t h a t a percent market share would

(Findings of F a c t 831-834,

be equiva lent t o d o l l a r sales o f approximately

F a c t 860). Thus, aseuming a gradual ly i n c r e a s i n g

Viscofan upon e n t e r i n g t h e domestic market, e n t r y

m i l l i o n . (Finding o f

t o t a l market share f o r

i n 1984 r a t h e r than

1986 would g i v e Viscofan an ear l ier foothold i n t h e market and r e s u l t i n

immediate and gradual ly expanding loss o f market share t o Teepak and Union

Carbide.

On t h e basis o f t h e foregoing c o n s i d e r a t i o n s , I f i n d t h a t t h e

importa t ion i n t o and sale i n t h e United S t a t e s o f Viscofan 's s k i n l e s s

sausage c a s i n g s would have t h e tendency t o s u b s t a n t i a l l y i n j u r e t h e

r e l e v a n t domest ic i n d u s t r i e s .

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CONCLUSIONS OF LAW

1. The Commission has j u r i s d i c t i o n over t h e parties t o and t h e s u b j e c t

matter o f t h i s i n v e s t i g a t i o n . 19 U.S.C. 0 1337(b).

2. U.S. L e t t e r s P a t e n t 3 , 4 6 1 , 4 8 4 i s v a l i d and e n f o r c e a b l e . 3 5 U.S.C.

5 0 2 8 2 , 112.

3. U.S. L e t t e r s P a t e n t 3 , 4 6 1 , 4 8 4 i s not i n v a l i d or unenforceable by

reason of misuse o f t h e patent i n v i o l a t i o n o f t h e a n t f t r u s t laws

o r by reason o f unclean hands.

4. The processes u t i l i z e d by respondent V i s c o f a n i n t h e manufacture o f

s k i n l e s s sausage c a s i n g s i n f r i n g e claims 1 , 2, 3 and 5 o f U.S. L e t t e r s

Patent 3 , 4 6 1 , 4 8 4 . 3 5 U.S.C. S 271(a).

5. P a t e n t infringement i s an u n f a i r act o r method o f compet i t ion under

19 U.S.C. 5 1337(a). I n re Von Clemm, 108 U.S.P.Q. 371 (C.C.P.A.

1955) . 6. Complainant Union Carbide i s t h e owner o f c e r t a i n c o n f i d e n t i a l and

p r o p r i e t a r y technology which it u t i l i z e s i n t h e e x t r u s i o n and s h i r r i n g

of s k i n l e s s sausage c a s i n g s , as f o l l o w s :

a. Union Carbide has a t r a d e secret i n i t s e x t r u s i o n tower or

c a r r y o v e r ;

b. Union Carbide has a trade secret i n c e r t a i n aspects of Its

e x t r u s i o n nozz le and mandrel assembly;

c. Union Carbide has a t r a d e secret i n i ts chemica l , q u a l i t y

c o n t r o l and manufacturing standards and s p e c i f i c a t i o n s ;

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d. Union Carbide has a trade secret i n certain aspects of its

s h i r r i n g head assembly and l u b r i c a t i o n system;

e. Union Carbide has a trade secret i n c e r t a i n aspects o f t h e

e x t e r n a l c o n f i g u r a t i o n and c o n s t r u c t i o n o f i t s shirring

mandrel; and

f. Union Carbide has a trade secret i n c e r t a i n aspects o f i ts

s h i r r i n g mandrel i n t e r n a l spray system.

7. Union Carbide does not have a t r a d e secret i n i t s o v e r a l l s h i r r i n g

machine c o n f i g u r a t i o n .

8. Viscofan has misappropriated c e r t a i n p r o p r i e t a r y and c o n f i d e n t i a l

technology from Union Carbide v i a i t s French s u b s i d i a r y , Viscgra, ,

as f o l l o w s :

a. V i s c o f a n has misappropriated Union Carbide's t r a d e secret in

i t s e x t r u s i o n tower o r . . c a r r y o v e r ;

b. V i s c o f a n has misappropriated c e r t a i n aspects o f Union Carbide's

t r a d e secret i n i t s e x t r u s i o n nozz le and mandrel assembly;

C. V i s c o f a n has misappropriated c e r t a i n o f Union Carbide's t r a d e

secrets i n i t s chemical standards and manufacturing s p e c i f i c a t i o n s ;

d. V i s c o f a n has misappropriated c e r t a i n aspects of Union Carbide's

trade secret i n i t s s h i r r i n g head assembly and l u b r i c a t i o n system; --

e. V i s c o f a n has misappropriated c e r t a i n aspects of Union Carbide's

t r a d e secret i n t h e e x t e r n a l c o n f i g u r a t i o n and c o n s t r u c t i o n o f

i t s s h i r r i n g mandrel; and

360

f. Viscofan has misappropriated c e r t a i n aspects o f Union Carbide's

trade secret i n i t s s h i r r i n g mandrel i n t e r n a l spray system.

9. There i s no proof t h a t Viscofan has misappropriated Union Carbide's

trade secrets i n i t s q u a l i t y c o n t r o l standards or c e r t a i n aspects o f

i ts manufacturing standards.

10. Misappropriation o f trade secrets i s an u n f a i r act o r method of compe-

t i t i o n under 19 U.S.C. 0 1337(a). Certa in Apparatus for t h e Continuous

Production o f Copper Rod, Inv. No. 337-TA-52, 206 U.S.P.Q. 138 (ITC 1979).

11. I n Inv. No. 337-TA-148, t h e r e i s a r e l e v a n t domestic industry comprised

o f the domestic operat ions o f Teepak and Union Carbide devoted t o the

manufacture, d i s t r i b u t i o n and sale of skinless sausage casings produced

i n accordance with t h e process claimed i n U.S. Letters Patent 3 ,461 ,484 .

12. I n Inv. No. 337-TA-169, t h e r e i s a r e l e v a n t domestic industry comprised

o f t h e domestic operat ions o f Union Carbide devoted to t h e manufacture,

d i s t r i b u t i o n and sale o f skinless sausage c a s i n g s produced with t h e

c o n f i d e n t i a l and proprietary technology owned by Union Carbfde.

13. The r e l e v a n t domestic I n d u s t r i e s are e f f i c i e n t l y and economically

operated . 14. I n t h e event t h a t Viscofan's skinless sausage c a s i n g s are imported

i n t o t h e United S t a t e s , t h e r e w i l l be a tendency t o s u b s t a n t i a l l y

i n j u r e t h e r e l e v a n t domestic i n d u s t r i e s .

IS. There I s a v i o l a t i o n of S e c t i o n s 337 and 337a.

36 1

INITLAL DETERMINATION AND ORDER

Based on t h e foregoing f i n d i n g s o f f a c t , conc lus ions o f law, t h e

opin ion , and t h e record as a whole, and having considered a l l of the

pleadings and arguments presented o r a l l y and i n b r i e f s , as well as pro-

posed f i n d i n g s o f fact and conc lus ions o f law, i t is t h e Pres id ing Officer's

DETERMINATION t h a t t h e r e is a v i o l a t i o n of S e c t i o n 337 and S e c t i o n 337a i n

t h e unauthorized importat ion i n t o and sale i n t h e United S t a t e s o f t h e

accused s k i n l e s s sausage c a s i n g s .

The Pres id ing Officer hereby CERTIFIES t o t h e Commission t h e I n i t i a l

Determination, t o g e t h e r wi th t h e record o f t h e hear ing i n t h i s i n v e s t i g a t i o n

c o n s i s t i n g o f t h e fol lowing: I

1. The t r a n s c r i p t o f t h e h e a r i n g , wi th appropr ia te c o r r e c t i o n s

as may h e r e a f t e r be ordered by t h e Pres id ing Officer; and f u r t h e r ,

2 , The E x h i b i t s accepted i n t o evidence i n t h e course o f t h e h e a r i n g ,

as l i s t e d i n t h e Appendix a t t a c h e d hereto .

The pleadings o f t h e p a r t i e s are not c e r t i f i e d , s i n c e they are a l ready

i n t h e Commission's p o s s e s s i o n , i n accordance wi th t h e Commission Rules o f

P r a c t i c e and Procedure.

Fur ther i t i s ORDEWD t h a t :

1. I n accordance wi th Rule 210 ,44 (b) , a l l material h e r e t o f o r e

marked i n camera by reason o f - b u s i n e s s , f i n a n c i a l , and marketing d a t a found

by t h e Pres id ing Officer t o be cognizable as c o n f i d e n t i a l bus iness in for -

mation under Rule 201.6(a) is t o be g iven f ive -year i n camera treatment

from t h e d a t e t h i s i n v e s t i g a t i o n i s terminated;

362

2. The Secretary shall serve a public version of this Initial

Determination upon all parties o f record and the confidential version upon

all counsel of record who are signatories to the protective order issued by

the Presiding Officer in this investigation;

3. Motion 148/169-27, Motion 148/169-29, and Motion 148/169-30 are

granted as provided in this Initial Determination.

4. This Initial Determination shall become the determination of

the Commission thirty (30) days after the service thereof, unless the

Commission, within thirty (30) days after the date of filing of the

Initial Determination shall have ordered review of the Initial Determination

or certain issues hereiu pursuant to 19 C.F.R. 210.54(b) or 210.55 or by

order shall have changed the effective date of the Initial Determination. I

Donald K. Duvall Administrative Law Judge

Issued: July 31, 1984.

363